SBA Disaster Loans: The Different Types

On top of the disastrous effects COVID-19 has had on local businesses, our nation’s residents and business owners are now getting hit with damage from wildfires on the West Coast and hurricanes in the southeast. This is where SBA disaster loans come into play.

You have several options if you are in a declared disaster zone (or in some cases, even if you aren’t) and your business was damaged. Let’s break down the different types of SBA disaster loans that are available to you and how you can apply to get the aid. 

SBA Declared Disaster Zones

First, it’s important to know that in order to apply for most of the available disaster loans, you must be in a disaster area declared by either the president and SBA or the Secretary of Agriculture.

Here is the current list as of September 17. We’ll update this list regularly, but you can also stay up to date on declared disaster areas on the SBA’s disaster loan assistance page. 

SBA Disaster Zones 2023 Update

Recent developments have impacted the scope and reach of SBA disaster loans. As of November 7, 2023, states such as Oregon, Louisiana, California, Colorado, Iowa, and North Carolina are under active disaster declarations due to incidents like wildfires and severe weather events. Additionally, on November 8, 2023, Arkansas received a declaration for severe storms and tornadoes.

Significant amendments to the SBA disaster loan program were enacted on July 31, 2023. These amendments are marked by an increase in loan limits and a broadening of eligibility criteria. A key change includes the elevation of the maximum limit for home disaster loans from $200,000 to $500,000.

Different Types of SBA Disaster Loans

SBA disaster loans are intended to help businesses that have been damaged by a declared disaster. Here are the different types of loans you can apply for. 

Economic Injury Disaster Loans

The EIDL provides funding to businesses who experienced financial loss due to a disaster. You can apply for up to $2 million in funding, but your loan amount is based on how much money your business lost due to the disaster. 

Currently, the interest rates are 3.75% for small businesses, and 2.75% for nonprofits. The maximum repayment term is 30 years, but your term is based on your ability to repay the loan. 

You’re eligible for the loan as long as you operate your business in one of the declared disaster areas. (Currently, all US states are considered a disaster area for this loan due to the coronavirus pandemic.) Once you receive the loan, you can use it for bills, accounts payable, fixed debts, and payroll. 

You cannot use the loan for the following: 

• Owner disbursements– unless for service performance
• Fixed asset purchases 
• Employee bonuses 
• Facility expansion or relocation 
• Long-term debt refinancing 
• Stockholder/principal loan repayment
• Federal agency or SBA loan debt — except for IRS obligations

Learn more about the EIDL in our in-depth guide. 

Business Physical Disaster Loans 

If your business sustained damage due to a natural disaster and is located in a declared disaster area, you can apply for a business physical disaster loan. You could potentially be eligible for up to $2 million and can use the loan for:

• Real property
• Machinery
• Equipment
• Fixtures
• Inventory
• Leasehold improvements

You cannot use the loan to expand your business. You can only use the funds for the above reasons and to get your business back to what it was before the disaster. 

Your interest on the loan will not be more than 4%, as long as you are unable to receive a loan from another organization. Your SBA lender will conduct a “credit elsewhere test” to determine this. View the SBA’s guidelines on the test to learn more about it. 

If you are able to get a loan from somewhere else, your interest rates can go up to as high as 8%. Repayment terms vary depending on your ability to repay the loan, but they can go as high as 30 years. 

Home and Personal Property Loans 

Although the SBA provides these loans, you don’t necessarily need to own a business to apply. Residents—including homeowners, renters, and personal property owners—living in a declared disaster zone can apply for this loan to recover from the disaster. 

Homeowners can apply for up to $200,000 and can use the funds to repair or replace their primary residence. You cannot use the money to upgrade your house. However, if you make improvements that will prevent future property damage, you could be eligible for a 20% increase on your loan amount.

As for renters, they—as well as homeowners—can apply to borrow up to $40,000 to replace and repair any personal property that was damaged in the disaster. 

Note: If you have a secondary or vacation property that was damaged in the disaster, you are not eligible to apply. But, if that second property qualifies as a rental property, you may be eligible for the business disaster loan program. 

Like the business loan program, if you pass the “credit elsewhere test,” your interest rate will not go above 4%. If you do get outside credit, your interest rate will be capped at 8%. One other caveat to this loan: Any insurance coverage you get on the property will be deducted from your total damage estimate, according to the SBA disaster loans page. 

Military Reservists Economic Injury Disaster Loans 

The MREIDL is meant specifically for businesses that employ at least one military reservist that is called to active duty. The SBA disaster loan helps the business meet “ordinary and necessary operating expenses that it could have met, but is unable to, because an essential employee was called up to active duty in his or her role as a military reservist,” according to the SBA page. 

The maximum amount you can borrow is $2 million, but the amount you receive is determined and calculated by the SBA based on what your economic injury is due to losing the employee for the time being. 

If you have business interruption insurance, your loan amount will most likely decrease. If you have enough funding to operate as a business, your loan amount will also be limited. You cannot use it to refinance long-term debt, expand your business, or to replace regular commercial debt. 

Note: You do not have to be in a declared disaster area to be eligible for this loan. 

The interest rate is 4% and the loan comes with repayment terms up to 30 years, based on your ability to repay. 

How Do I Apply? 

You can apply online for SBA disaster loans after you register with the Federal Emergency Management Agency (FEMA), unless you are applying for an MREIDL. FEMA will give you a registration number, which the SBA requires you to have before applying. Additionally, gather the following before applying: 

• Contact information for all applicants
• Social security numbers for all applicants
• Deed or lease information
• Insurance information
• Financial information such as income, account balances, and monthly expenses
• Employer Identification Number for business applicants

Note: If you are applying for an MREIDL, you also need to submit a signed and dated IRS Form 4506-T. This form gives the IRS permission to provide your tax information to the SBA. 

After you send in your application an SBA inspector will come to you and perform an onsite review to provide a damage estimate. Be sure to take your time and submit accurate information in your application. While the SBA tends to respond quickly and get back to applicants within a few weeks, the most common reason for delays is errors in applications.