Disaster Loan Relief

Everything You Need To Know

As the COVID-19 pandemic progresses, many business owners continually face financial struggles. Some businesses have closed or reduced operations due to COVID-19, while others remain open, racking up unexpected expenses for things like personal protection equipment (PPE) and cleaning services. As a business owner, you may find yourself shelling out extra funds for virtual training programs, computers and phones for remote workers to keep you up and running.

Despite these challenges, business owners must continue paying employees, rent and utilities. Keeping up with regular expenses can get tricky during an economic crisis, which is why some companies rely on SBA disaster loan relief and other COVID-19 financial assistance programs.

Whether you’re a small business with one building or an international company with offices scattered across the globe, disaster relief loans can help you stay on track with your financial commitments. For more information about economic disaster relief for company obligations, such as unemployment assistance for payroll or extra funds for supply costs and business debts, this article can help you decide what’s best for your organization in a time of emergency.

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What type of Disaster Assistance Loan are you looking for?

Economic Injury Disaster Loan

The Economic Injury Disaster Loan offers financial relief for small businesses that have been hit by a temporary loss in revenue. SBA economic injury disaster loans also cover most private nonprofit companies and agricultural businesses who need help recovering from a disaster.

To qualify, your business must be located in an area that has been declared a disaster, either by the Small Business Administration or the federal government. You can use loan funds for payroll, fixed debts, business adaptations required during a disaster and accounts payable. The loan cannot cover debt refinancing, nor can you use it to become current on another loan.

People often confuse the Economic Injury Disaster Loan alongside the Economic Injury Disaster Loan Advance program, but they're two different financial solutions. The Economic Injury Disaster Loan is currently available, but the Advance program was put on hold on July 11, 2020. However, the government is still processing applications for the Advance program as of mid-July 2020, and additional funding has not been approved at this time.

Whether you apply online or via a paper application, expect to provide the following documents for your Economic Injury Disaster Loan:

  • SBA Form 5 and/or Form 5C
  • Tax Authorization Form 4506-T
  • Federal tax returns from the last three years
  • Personal Financial Statement
  • Schedule of Liabilities

You may also need to submit a year-end profit-and-loss statement or balance sheet, plus monthly sales information.

Having a strong credit history improves your chances of getting approved. The U.S. Small Business Administration simply states that applicants must have an acceptable credit history, leaving many potential loan recipients confused by the requirements. Research indicates that applicants should have a credit score of at least 620 to 640, and your recent payment history plays a role as well.

Additionally, you must meet at least one of the requirements listed below. For approval, you should be:

  • A business with 500 or fewer employees
  • An individual who is a sole proprietor or independent contractor either with or without at least one employee
  • A cooperative that does not have more than 500 employees
  • An Employee Stock Ownership Plan (ESOP) with 500 or fewer employees
  • A tribal small business concern with 500 or fewer employees
  • An agricultural cooperative that meets SBA Size Standards
  • A private nonprofit organization that is not a governmental agency or entity
  • A business that has more than 500 employees but still meets the guidelines established for SBA Size Standards

Some small businesses are ineligible for an Economic Injury Disaster Loan despite otherwise meeting the requirements detailed above. Here are some ineligible institutions:

  • Businesses which incur at least 1/3 of annual revenue from gambling-related activities, even if the activities are legal
  • Businesses that focus on lobbying or political activities
  • Businesses that participate in multi-level sales distribution, though some exceptions are made for real estate property incurred prior to the economic disaster
  • Businesses that focus on religious teachings, instructions or indoctrination

Additional restrictions may apply. If you need help figuring out whether your company qualifies, Lendzi is here for you.

Applicants can receive up to $150,000 from the Economic Injury Disaster Loan. The amount you receive depends on your profits, credit score and ability to repay the funds.

If a borrower defaults on repayment, the SBA initiates a UCC lien against the recipient’s business assets. A personal guarantee is required for loans exceeding $200,000, which means an individual must agree to take on the company’s debt if a default occurs. Collateral is often required for loans exceeding $25,000, especially if you’re in the process of strengthening your credit score.

Application volume impacts approval time, so apply as soon as possible if you need funds quickly. The SBA strives to review applications within 21 days. If you’re approved, funds are usually disbursed within five days. However, it may take additional time for your financial institution to process and release the funds.

You can check on your SBA disaster loan status by contacting your assigned loan officer. You may also find helpful information by accessing the SBA disaster loan login portal.

For-profit businesses have an interest rate of 3.75%, but the rate drops to 2.75% for private nonprofits. Funds must be repaid within 30 years.

The first payment is due 12 months after the origination date for SBA Economic Injury Disaster Loans. Keep in mind that loan recipients still rack up interest during the first year, so you might want to make a payment before the first one becomes due.

What are some pros and cons?

Before deciding whether the Economic Injury Disaster Loan is the right SBA disaster loan for you, consider the following pros and cons:

Pros:

Cons:

Business Physical Disaster Loan

When a physical disaster rather than an economic crisis damages your business, consider getting a Business Physical Disaster Loan. This type of loan helps companies repair or replace property, such as real estate, supplies and equipment, damaged by a disaster. There are no size requirements, so small, medium and large enterprises can apply. Nonprofit organizations, including churches, private universities and charities, are also eligible.

As with the Economic Injury Disaster Loan, you must be in an area that has been declared a disaster by the federal government. You might be required to file an insurance claim for the damage prior to applying for the Business Physical Disaster Loan, but it’s possible to receive funds from both an insurance agency and the SBA. You must reference insurance proceeds when you complete your application.

As with most government loans, you need numerous documents for a physical disaster loan. Gather the following documents before you apply so you can avoid delays:

  • A separate Business Loan Application (SBA Form 5) signed by each applicant
  • IRS Form 4506-T completed and signed by your company’s applicant, plus each principal who owns at least 20% of the business, each of your company’s general partners and any owner with more than a 50% stake in your business
  • Copies of your most recent federal business tax return
  • A Personal Financial Statement (SBA Form 413) completed by the applicant, sole proprietor, any principal owning at least 20% of the business and any general partners or managing members for your business
  • Schedule of Liabilities and/or SBA Form 2202

You may also need additional information, such as:

  • A year-end profit and loss statement and/or balance sheet for the most recent tax year if a return has not yet been filed
  • A current year-to-date profit and loss statement
  • Insurance information verifying the amount paid for disaster relief

Your personal loan officer will let you know which of these documents you need after you apply.

There is no minimum FICO score required for a Business Physical Disaster Loan, though your odds of approval may increase if your score is in the mid 600s or higher. The SBA states that applicants must have acceptable credit for approval.

Prior to receiving a business disaster loan, applicants must also meet other requirements, including:

  • Your business must operate in a declared disaster area
  • Your business must have experienced losses or damages due to a disaster
  • Your business must be an eligible for-profit or nonprofit entity

It may also help your eligibility if your company has losses that are not covered by insurance. If insurance pays for some of the physical damage stemming from the disaster, you must mention this on your loan application.

Although an SBA physical disaster loan has fewer restrictions than many other financial solutions, restrictions still apply. Your company might be ineligible for funding if any of the following statements apply:

  • Your business is located in a hazardous area prone to natural disasters, such as floods or earthquakes
  • Your business is a government-owned institution unless it’s owned by a Native American tribe
  • Your business participates in illegal activities
  • Your business accumulates substantial income from goods or services of a prurient sexual nature
  • Your business is an agricultural enterprise

Your company may also be ineligible for disaster loan assistance if you plan to relocate. Exceptions apply, but be prepared to explain your relocation to the SBA during the application process.

Applicants can borrow up to $2 million for disaster relief from the SBA business loan for physical damages. Your amount is based on your ability to repay the funds as well as the extent of physical damage that impacted your business. An SBA verifier assesses the damage to your business, then creates an estimate for the funds needed to recover your losses.

Physical loss loans exceeding $10,000 may require collateral, so keep that in mind when you request disaster assistance from the SBA. A personal guarantee is required for loans that exceed $200,000.

The SBA tries to approve or decline all applications within four weeks. If your application gets approved, you can generally expect a loan disbursement within five days. The exact time frame varies based on how quickly your financial institution processes funds.

You either get 3 years or 30 years to repay your physical disaster loan from the SBA. Applicants with other funding must repay the loan within 3 years, but other applicants have a 30-year timeline.

Interest is charged at a rate of 4% to 8%. The 4% rate is reserved for applicants who can’t obtain credit for disaster relief elsewhere. Applicants who qualify for additional funding may incur an 8% interest rate.

What are some pros and cons?

As with other forms of disaster relief, there are various benefits and potential disadvantages associated with the Business Physical Disaster Loan from the SBA. Consider these factors before deciding whether an SBA disaster loan is right for you.

Pros:

Cons:

Military Reservists Economic Injury Loans

Military Reservists Economic Injury Loans, often called MREIDLs, provide relief from economic loss associated with military members who must leave for active-duty assignments. These long-term loans offer assistance for small businesses with one or more employees who are military members placed on active duty. The goal of the loan is to help enterprises cover expenses that would have been manageable had a company’s employee(s) not been called to active duty.

Some insurance requirements apply, and funding is based on the amount your interruption insurance covers. You can’t use a Military Reservists Economic Injury Loan for lost income, lost profits or debt refinancing. However, you can use funds for regular expenses necessary for daily operations as well as the production or marketing of goods.

Applicants must confirm that a substantial economic injury has occurred as the direct result of an employee or employees who have been called for an active duty military assignment.

You may also need the following information or documents:

  • SBA Form 5R
  • Copies of each employee’s official call-up orders for active duty, including each essential worker’s call-up date or anticipated call-up date, plus a release date
  • A statement from the owner of the business verifying that the employee(s) is/are essential to the company’s daily operations. This statement should include each military member’s duties and explain why these duties cannot be performed during the employee’s absence
  • A signed certification from each essential employee verifying the validity of the business owner’s statement
  • A detailed explanation describing how an essential employee’s absence will create an economic injury for your business — the explanation should also include a financial estimate of the expected injury
  • Clearly defined steps your company plans to take in an attempt to alleviate damage from the economic injury
  • A certification from business owners verifying that the essential employee can resume the same position or a comparable position after completing active duty

You may need additional documents, particularly if your business is deemed a major source of employment, as outlined by the guidelines the SBA maintains.

There is no minimum credit score required for Military Reservists Economic Injury Loans. However, you must demonstrate creditworthiness to the SBA by showing a history of on-time payments and an ability to repay borrowed funds.

Collateral is required for Military Reservists Economic Injury Loans that exceed $50,000, but the SBA will not reject an application due to a lack of collateral. Real estate can be used as collateral.

Prior to disbursement, borrowers must obtain any insurance coverage the SBA deems necessary. Recipients must also maintain this coverage during the duration of the loan. Hazard insurance is required for secured loans of at least $50,000. Flood insurance is also required if your business is located in a flood zone.

Some small businesses are ineligible for a Military Reservists Economic Injury Loan. Ineligible businesses include, but are not limited to, the following:

  • Companies where the owner is incarcerated or on probation or parole for a serious crime
  • Multilevel marketing companies, also known as MLBs
  • Nonprofit entities
  • Agricultural enterprises
  • Government-owned entities other than those controlled by Native American tribes
  • Consumer or marketing cooperatives
  • Loan packaging companies where more than 1/3 of annual income are from packaging SBA loans
  • Political organizations
  • Businesses whose primary duties include teaching or indoctrinating religious beliefs

Applicants can receive up to $2 million to cover the losses incurred while military members are on active duty, with large businesses sometimes qualifying for higher amounts. The funding amount is based on the losses your company’s interruption insurance covers.

It’s possible to have the $2 million cap waived if you can show that your business is a major source of employment. This means that your company employs at least 10% of its workforce from the surrounding geographical area, employs at least 250 workers from the area and meets other guidelines established by the SBA.

Funds are disbursed in quarterly installments unless otherwise specified. You must use funds for approved purposes or risk defaulting on your agreement.

Loan recipients receive a long-term loan with a 30-year repayment plan. Interest is capped at 4%.

Pros and Cons for Military Reservists Economic Injury Loans

Military Reservists Economic Injury Loans aren't right for every company, but they can help you bounce back after losing an employee to active duty requirements. Consider these pros and cons before making a decision:

Pros:

Cons:

SBA Bridge Express Loan

Customers who already have a loan through the SBA or an SBA-approved agency may qualify for additional funding. This funding comes in the form of an SBA Express Bridge Loan, and it’s generally designed for short-term relief. This type of loan is appropriate for business owners who need help recovering from temporary revenue loss during the spread of COVID-19. You can also use an SBA Express Bridge Loan while waiting for disbursement of an Economic Injury Disaster Loan.

This is an expedited program, which means many applicants receive funds in just 45 days. The SBA says that disbursement should take no longer than 90 days. Applicants must have established a relationship with the SBA on or before March 13, 2020 to qualify for an Express Bridge Loan.

Minimal documents are required for the SBA Express Bridge Loan compared to other SBA loans for disaster relief. That’s because a relationship already exists between applicants and the SBA.

Here are some documents you may need for an SBA Express Bridge Loan:

  • SBA Form 19, also called the Borrower Information Form
  • IRS Form 4506-T
  • SBA Form 601 for construction costs exceeding $10,000
  • SBA Form 159 for lenders who charge an application fee
  • SBA Form 912 or a Statement of Personal History

You may need additional documents. Lendzi can help you understand which documents you need and why they are required.

The SBA performs a credit check prior to disbursing Express Bridge Loans for disaster relief. There is no minimum FICO score required, but applicants must have an SBSS score of 130 or higher. An SBSS score is the FICO Small Business Scoring Service Score, and it’s reserved for business owners or applicants.

There are additional requirements for applicants who want an Express Bridge Loan, including:

  • Your business must be at least two years old
  • Your business must have been an operating business on March 13, 2020
  • COVID-19 must have directly impacted the growth or revenue of your company
  • You must have had an existing relationship with an SBA-approved lender on or before March 13, 2020
  • Your business must not exceed 500 employees unless otherwise specified by the SBA

Remember, you cannot get an Express Bridge Loan unless you already have a relationship with the SBA. If you do not, start by applying for an Economic Injury Disaster Loan. Once a relationship is established, you may qualify for an Express Bridge Loan at a later date.

Applicants can receive up to $25,000 from the SBA Express Bridge Loan. No collateral is required.

Funds are disbursed within 45 to 90 days for the SBA Express Bridge Loan.

Borrowers have up to seven years to repay funds for an SBA Express Bridge Loan. However, your loan proceeds may become due at an earlier date if you are awaiting disbursement for an Economic Injury Disaster Loan from the SBA.

The interest rate is typically 6.5% or less, and you may also have fees for the application process. Your fees must not exceed 2% of your loan amount or $250, whichever is greater.

Pros and Cons for SBA Express Bridge Loans

Review the pros and cons of obtaining an SBA Express Bridge Loan before you request funding. This loan is likely a good fit for you if you need fast cash and can handle a short-term repayment plan.

Pros:

Cons:

SBA Debt Relief

Keeping up with business costs during COVID-19 isn’t easy, especially when you’ve got loans due. The SBA Debt Relief program helps business owners focus on vital expenses by covering some fees for existing borrowers. Borrowers must have current loans in a regular servicing status or request a microloan disbursement by September 27, 2020.

Borrowers who received funding via Economic Injury Disaster Loans or the Paycheck Protection Program are not eligible. There is no need to apply for assistance, as benefits are automatically provided to qualifying borrowers.

The SBA is offering relief from interest, principal and other associated fees for borrowers who have qualifying loans that were disbursed prior to September 27, 2020.

The SBA will make six consecutive monthly payments for qualifying borrowers whose accounts are not in deferment. These payments will begin when the next payment is due. The SBA will also make six consecutive monthly payments for loans in deferment. These payments will start when the deferment period ends.

Borrowers who have SBA Serviced Disaster Loans for their home or business are also eligible for assistance. Borrowers do not need to apply, as benefits are automatically approved. These borrowers will receive an automatic deferral on payments until December 31, 2020. During this time, interest will still accumulate, so you may wish to keep making payments. If you continue making payments, they will be applied normally.

The SBA is offering relief from interest, principal and other associated fees.

Which Loan Is Right for Your Business?

COVID-19 and other disasters impact each business differently. If you are struggling after a local or national disaster, weigh all of your options before choosing the financial solution that works for you.

We’ve compiled a handy chart of popular business loans to help you decide:

Economic Injury
Disaster Loan
Business Physical
Disaster Loan
Military Reservists
Economic Injury Loan
SBA Express
Bridge Loans
EligibilitySmall businesses; private nonprofitsCompanies of all sizes who have experienced physical damage after a declared disasterCompanies with employees who are called to perform active duty military assignmentsCustomers who have had a relationship with the SBA since March 13, 2020 or a previous date
Maximum Amount$150,000$2 million$2 million$25,000
Term Length30 years3 or 30 years30 yearsSeven years, but full payment might be required sooner if you’re waiting on EIDL funds
Interest Rate3.75% for small businesses; 2.75% for private nonprofits4% to 8%4%6.5% or less
Credit RequirementsMinimum 620 FICO recommendedNo minimum credit score requirement, though the SBA bases its decision on creditworthinessNo minimum credit score requirement, though the SBA bases its decision on creditworthinessMinimum FICO Small Business Scoring Service Score of 130

Remember, the SBA is often hesitant to provide multiple loans. That’s why it’s important to let a trusted expert, such as Lendzi, help you compare your options.

Disaster Relief Loans for Renters and Homeowners

Disaster relief options are often tailored toward business owners, but you may also qualify for financial assistance if you rent or own a home. This is true even if you have a condo rather than a traditional house. Loan amounts are small compared to many SBA business loans, but you might qualify for anywhere from $40,000 to $200,000 depending on your home’s damage.

SBA Home and Personal Property Disaster Loans are geared toward individuals or couples who own or rent their home. This might be a traditional house, a condo or another type of real estate.

To qualify, your primary home must have been damaged as the direct result of a natural disaster. You cannot use SBA loans for a vacation property. SBA home and property disaster loans are for repairs, not upgrades. The SBA may make an exception if you’re requesting property upgrades designed to help prevent future damage from disasters.

Borrowers can also use SBA loans if they need to replace personal possessions that were lost as the result of a disaster. These personal possessions include clothing, appliances, furniture and cars.

Homeowners can request as much as $200,000 for property repairs. Personal property replacement is capped at $40,000 for homeowners and renters.

Interest rates range from 4% to 8%. Expect to get hit with an 8% interest rate if the SBA believes you can get funding elsewhere. The repayment term is typically 30 years, and there is a credit check required.

Who’s Eligible?Maximum AmountTerm LengthInterest RateCredit Requirements
Renters and homeowners, including condominium owners$200,000 for property repairs; $40,000 for personal property replacement30 years4% to 8%Credit check required

Additional Options for Businesses and Individuals Impacted by an Economic Disaster

Not everyone qualifies for an SBA loan, regardless of whether you’re a business owner or an individual. Even if you do qualify, you may wish to explore other financial solutions before applying for an SBA disaster loan. From personal loans to business lines of credit, here are some other options for financial assistance after an economic disaster.

Personal loans are a great choice if you want the freedom to spend your loan as you see fit. Many SBA loans have specific requirements, whereas a personal loan is suitable for anything from disaster relief to medical expenses. Here are some expenses you can cover with a personal loan:

Personal loans can be used as disaster relief assistance, but they aren’t limited to that. Consider getting a personal loan if you need funds for a variety of expenses or need help paying for expenses unrelated to a physical or economic disaster.

Keep in mind that you typically need a credit score that falls between 620 to 740 or higher if you want a personal loan. You may also need to offer some collateral, such as your home or car, in exchange for the loan.

A business line of credit covers business-related expenses, and you can use it over and over again. Think of it as a credit card, minus the plastic. There aren’t many restrictions for use, so you can pay for supplies, equipment or other essential expenses.

Funding is often quick for commercial credit lines. Some businesses receive funds in just a few days, and a credit check isn’t always required. Interest rates are comparable to credit cards, which is why many businesses prefer SBA loans. SBA loans typically have rates ranging from 2.75% to 8%.

Business owners typically need an annual revenue of $50,000 or higher to get a commercial line of credit. It also helps if your business has been operating for at least six to 12 months.

Credit cards are available for business and personal use. The type of card you request depends on your credit history and spending habits. For example, you may prefer a hotel card if you travel often or a general card if you buy a little bit of everything.

Your credit limit is determined by your credit history. Limits range from $200 to more than $20,000, so some applicants have multiple cards. You can typically use your cards for any legal activities, whether you need to pay for COVID-19 tests or expand your business.

Merchant cash advances are based on the last six to 12 months of your company’s payment history. This solution is ideal for corporations that receive a large number of credit card payments, as lenders typically review your credit card sales history.

Consider a merchant cash advance if you’re okay with a short-term financial solution. Funds are usually repaid within 18 months, but some businesses repay them after just 90 days. Advance payments are typically deducted automatically from your sales, which can be a problem if you’re experiencing a slow period due to a disaster. You may prefer a loan geared toward an economic crisis, such as the Economic Injury Disaster Loan.

Which Disaster Relief Bills Protect Your Home or Business During the COVID-19 Pandemic?

The Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security Act offer disaster relief assistance during the COVID-19 pandemic. As a result of these bills, Americans have access to the following benefits:

Benefits

Benefits are available to eligible business owners and families and may evolve over time. If you need help understanding these benefits, reach out to Lendzi for clarification. We're happy to help.

Contact Lendzi for Disaster Relief Options

Determining which disaster relief solution is right for your business and your family can get tricky. Do you need small business disaster loans? Disaster unemployment assistance? Funds for renovations and repairs resulting from a disaster? A personal loan that you can spend as you deem fit?

Lendzi understands the ins and outs of disaster loans, and we’re happy to share our wealth of knowledge with you. Reach out via our online form or shoot us an email at [email protected]. Our educated team is here for you, whether you need a brief rundown of disaster loans in general or want specific advice regarding the right solution for your needs.

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