In 2021, businesses had over $152 billion in weather-related damages. For many business owners, a natural disaster could mean the end of the business. This is where economic injury disaster loans come in to save the day.
You may be wondering what an economic injury disaster loan is or if you even qualify. If so, this article is for you! Keep reading to learn more about who can apply and what kinds of disasters the loans cover.
What Are Economic Injury Disaster Loans?
Economic injury disaster loans are loans to help businesses recover from a disaster. The loans are usually given by the US Small Business Administration. Businesses can use the loans for things such as fixing or replacing damaged property, repairing machinery, and replacing inventory.
The SBA offers these loans to help businesses after they have been affected by a natural disaster or another event that has caused an economic injury. They do this with the hopes of helping the business get back on its feet as quickly as possible.
Who Can Receive Disaster Loan Assistance?
Businesses impacted by a disaster can apply for a disaster loan. To be eligible for a disaster loan, the business must be able to provide proof of its financial condition and meet some of the following criteria:
- They must be able to repay the loan
- They must have an acceptable credit history
- They must not already own another business with outstanding debt
- Their annual sales volume cannot exceed $5 million
- They must have a business license
The SBA disaster loans cover a variety of hurricane damages. Hurricane damage can be detrimental to a business owner. SBA loans help to get the business running again.
Some of the damages may include:
- Damage to your building, including the foundation, walls, and roof
- Damage to your business inventory and equipment
- Loss of inventory due to water damage
- Costs associated with restoring utilities lost or damaged during the disaster
- Other costs associated with getting your business back up and running
- Cost of keeping staff for when the business reopens
- Renovations to fix damages
A business may receive a disaster loan if it has lost inventory or equipment due to flooding. Farms may also be eligible for a disaster loan if they have flood damage.
A flood can be devastating to a business. A flood could destroy property, contaminate supplies, and disrupt operations. Floods can also cause toxic waste to leach into the environment.
The most common type of damage is property: flooding destroys buildings and equipment, ruins inventory, damages furniture and building structures, and forces people out of their homes or off their jobs.
Flooding disrupts operations by damaging machinery and interrupting supply chains. This can lead to losses in revenue due to interrupted production and the inability of service-based businesses to deliver orders.
Severe Storm Damage
Severe storms can also cause damage to a business which makes it unable to operate. These storms tear through towns quickly, but the damage can last. The SBA disaster loans cover damage caused by a severe storm, including:
- Snowstorm or blizzard
It’s traumatizing when a tornado rips through a city and tears everything up. Not only is the city in disarray, but you may lose your business or have significant damage. SBA disaster loans can be used to repair or replace after a tornado:
- Real estate (owned or leased)
- Machinery and equipment
- Furniture and fixtures
- Computers and software-related equipment (including hardware)
- Farm assets (livestock)
What Are the Terms?
The terms are straightforward for all business types. The SBA makes loans easy to access no matter what the size of your business. The terms include the following:
The fixed interest rate for a small business is 3.75%. If the business is a non-profit, the fixed interest rate is 2.75%. The loans are for 30-year terms without penalties for paying them off early.
The amounts for disaster loans go up to $2M. For loans over $500,000, the applicant must have collateral.
The SBA defers payments for two years following the loan application and approval. However, during this time, interest does accrue. Business owners can choose to make payments during this time if they’d like.
Tips to Prepare for Taking Out a Disaster Loan:
So, how do you apply for one of these loans? You fill out an application. But first, you need to consider the following:
Look at Your Qualifications
Businesses with sound qualifications are much more likely to get approved for a loan. When applying, the lenders will consider these aspects:
- Your credit history (personal or the business’s)
- Annual revenue
- Collateral offered
- Business history
Determine How Much You Need
Take the time to calculate how much money you need to get back to operating after a natural disaster. This could include how much you need to keep paying employees, replace your location, or replace inventory. You need to have a clear plan for the funds to show potential lenders.
Next, you need to browse lenders who provide SBA loans. There are several options for business owners to choose from, both in-person and online. Browsing what lenders are available will help you determine the best fit for your situation.
Gather Necessary Information for the Application
You’re finally ready to apply. You need to make sure you have all the required documents ready to go to keep the application moving smoothly. Some of these documents include:
- Tax returns
- Bank statements
- Payroll records
- Lease or mortgage agreements
- Articles of incorporation
- Financial statements
Get Help Applying Today
Now you understand your options for receiving SBA’s economic injury disaster loans. Whether you have damage from Hurricane Ian or another natural disaster, you may be eligible for one of these loans. If you aren’t sure or would like to speak to someone about this further, we are here to help!
At Cornerstone Capital Advisors, Inc., we have 21 years of experience in navigating small business loans. We are ready to assist you with your application or to answer your questions. Contact us today to learn more about how we can help.