Can You Get An SBA Disaster Loan With Bad Credit? (Do You Qualify For An SBA Disaster Loan?)

There is always a risk of loss of revenue in the case of a disaster. Such loss of revenue can seriously affect a business of any size and even kill it off completely. With such narrow margins, emergency savings may not be able to help beyond the short term.

In response to such risks to businesses, the SBA (Small Business Administration) offers loans to those who may have been affected by a disaster such as damage related to the catastrophe, possible evacuations, and the closure of the business altogether. 

Disasters are not only in the form of hurricanes, tornadoes, or Tsunamis. COVID-19 has affected millions of businesses worldwide and in the wake of its devastating consequences, the SBA disaster loans have been made more widely available for those affected. This is part of the CARES Act which was signed into law on March 27, 2020.

Furthermore, the Coronavirus Relief Bill, signed on December 27th, 2020, allocated an extra $20 billion for EIDL (SBA Economic Injury Disaster Loans). These were set in place to help businesses that are in low-income regions who have proof of economic hardship caused by the pandemic.

Today, we will be finding out more about SBA Disaster loans and whether you can qualify for one to help your business.

What Is An SBA Disaster Loan?

An SBA Disaster Loan is a low-interest loan offered to companies and businesses who are in dire need of help due to certain types of disasters. Set up by the Small Business Administration, this loan’s main aim is to help ailing small businesses remain open as well as retain their property and additional assets.

These SBA disaster loans are specifically for small businesses, homeowners, non-profit organizations, and renters who have been experiencing financial hardship caused by circumstances beyond their control. In other words, a catastrophe or disaster.

These loans also help to cover any kind of gaps in your insurance coverage or just provide a maintainable financial bridge until your insurance claims can be processed and funds can be provided.

If a disaster may not be covered by insurance, the SBA administers loans through their Economic Injury Disaster Loan program (EIDL). This loan program provides funding worth up to $2 million but this depends on the needs of the business. Also, repayment terms tend to be sorted to meet the requirements and ability of a particular business.

SBA Disaster Loan Requirements

The SBA aims to be as generous and helpful as possible with its loan programs. However, there are some strict requirements for businesses to qualify in cases of disasters such as COVID-19. This is in place so the SBA can help as many businesses as possible.

Overall, there are four main requirements for businesses to acquire an SBA disaster loan:

  • Credit Score
  • Location
  • Repayment Abilities
  • Collateral Available

Credit Score

To qualify for an SBA disaster loan, routine credit checks are performed by the Small Business Administration. This is to ensure you can qualify against their credit score requirements.

When you take out any loan, the lender considers possible risks. Therefore, credit checks help lenders to stay informed on potential risks and helps mitigate them.

Currently, the SBA loan minimum credit requirements are about 620 to 640. If you or your businesses have a less than impressive credit score, the SBA will not right you off just yet. They will consider other factors such as your recent income and history of rent payments, insurance, utilities, and other forms of payments.

Upon these findings, the SBA will then decide on whether you can qualify for an SBA disaster loan or not. They will also consider other business loan options for you too.

Location

Another requirement for an SBA disaster loan is that your business must operate within a declared disaster zone. This can include cities, counties, states, or even countries but the scale of the location generally depends on the nature of the disaster.

You can check the SBA website for an up-to-date list of areas and regions that have been declared official disaster zones. This will help you determine whether you fall into a qualifying area.

Repayment Abilities

The main question many ask is “do you have to repay an SBA disaster loan?” If you receive an EIDL grant, it is just that, a grant. Therefore, you do not have to repay this.

If you receive an SBA disaster loan, you will have to repay the loan plus interest. The same goes for the majority of loans available. SBA disaster loans include a 1-year deferment and a 30-year loan term. Therefore, your loan will start to build interest immediately. However, unlike many other loans, there are no penalties for prepayment.

As with any type of loan, the lenders must consider your ability to pay it back in full. Generally, this will be inspected on a case-by-case basis, especially for businesses affected by the Coronavirus pandemic.

Many factors are taken into consideration. Some businesses may rebound quicker than others so will be able to repay their loan easily. On the other hand, some may require higher sums of money and more time to overcome the economic hurdles in front of them created by a disaster.

Collateral Available

For businesses looking for a loan worth more than $20,000 to $25,000, it is highly likely that lenders will require some form of collateral to complete the borrowing process.

Collateral is simply any asset of value or property that a lender can use for balancing the cost of the loan if there is a significant risk of no repayment. For instance, the SBA can consider your business property as collateral for larger loans if you were not able to meet all the terms of the loan.

The SBA designs these loans to be as accessible as possible to anyone who is in need. Therefore, you should never be afraid of applying if you feel it can benefit you in any way. Even if you have bad credit and little to no collateral, the SBA will work with you to find an agreement that suits both parties involved.

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