What Can I Use the SBA Disaster Loan For?

According to the SBA, a loan from them is supposed to provide capital so you can keep your business running - whether that’s making sure your staff are paid, keeping up with the rent on your business property, or paying back interest - it’s up to you.

However, if you have previously received a Paycheck Protection Program (PPP) loan then you cannot use an Economic Injury Disaster Loan (EIDL) in order to pay for the same expenses.

Learn more about the way those two loans overlap here.

So, what exactly can you use an EIDL for?

  • Inventory and stocktaking
  • Website hosting and online advertising
  • Any outstanding accounts payable
  • Any required office supplies or stationary
  • Merchant fees
  • Monthly financial requirements e.g loan and credit card payments (though you cannot pay these off entirely as this would be considered refinancing - more on this in a sec)
  • Utilities and rent
  • Bookkeeping and paying for the service of an accountant

Generally speaking, these funds are being provided to pay for any everyday expenses that otherwise you could have covered yourself if it wasn’t for the disaster.

It is probably also useful to explain what you can’t use a disaster loan for, which includes the following:

  • Repaying any stockholder or principal loans
  • Dividends or payday bonuses
  • Paying disbursements to owners, unless directly for the performance of a service
  • Relocating the business
  • Refinancing any existing long term debt
  • Repairing or replacing physical damage
  • Expanding the business facilities or acquiring further fixed assets

Any other disaster loans (that aren’t specifically for economic injury) can be used for the following, as declared on the SBA website:

“Losses not covered by insurance or funding from the Federal Emergency Management Agency (FEMA) for both personal and business” and/or “business operating expenses that could have been met had the disaster not occurred.”

It isn’t possible to scam the SBA either - you can’t just ask them for money and lie about it. They send inspectors out to determine how much damages have been done and therefore how much money should be paid out.

You must, as a business owner, keep a record of everything you use the SBA loan for. It’s worth getting a separate account to keep it in, as this is helpful to keep track of your spending should you be asked to justify any of it.

It’s also very much recommended that you keep any and all paperwork or documentation that comes as a result of your SBA loan or whatever you spend it on.

The easier it is for you to prove where the money has gone, the less trouble you’ll have.

Is the SBA disaster loan real?

Yes! The Small Business Association provides a great many loans during what is known as a declared or “official” disaster. Servicing the whole of America, if something goes horribly wrong in your area, the SBA is there to help.

Most recently, they have been offering what is called a Covid-19 Economic Injury Disaster Loan (EIDL), which is helping businesses to recover and reopen following the coronavirus pandemic.

They also cover a variety of other disasters with their loans, for instance:

  • Physical damage loans - as the name suggests, these cover the costs of repairing and replacing anything physically damaged during a declared disaster
  • Mitigation assistance - this allows funding for small businesses to cover the expenses of opening and operating following a declared disaster
  • Economic injury disaster loans - providing relief to both non-profit organizations and small businesses who have suffered either damage to their business, home, or personal property in the event of a declared disaster

When applying for a disaster loan, you can ask for up to two million dollars - so long as you can justify why your business requires that amount of money. - though given recent events, it is believed this has been capped to $150,000 for now.

As you can imagine, this is a loan and not a grant, so you will eventually have to pay it back. Plus, not everyone will qualify for the loan - it’s best to read through their lengthy terms and conditions before even attempting an application, to be honest.

However, the interest rates for those who do qualify if usually incredibly low - capped at around 3.75% for businesses or 2.75% if it’s for a non-profit.

Plus, the repayment periods are typically incredibly generous, usually at between 15 and 30 years!

There is also what’s known as the Physical and Personal Property Disaster loan, which are available to both single individuals and entire households that are located in areas where a disaster has been declared.

For instance, a Personal Property Loan gives any eligible homeowner or renter in a disaster area up to forty thousand dollars in order to either seek repairs for or entirely replace any property that was damaged or destroyed by the disaster.

A Real Property Loan on the other hand is designed to offer homeowners in the affected areas with anywhere up to two hundred thousand dollars, in order to restore the property to its previous, pre-disaster state, minus any insurance settlements.

If you’re worried about the legitimacy of a loan, there’s an easy way to check. First things first, go ahead and check whether or not the SBA has declared an official disaster in your area via their website.

You should only ever apply for disaster loans via the SBA website - anywhere else and you are definitely being scammed.

Their site has a portal where you can log in and check your status, plus they will communicate with you using the official SBA email address.

There are actually five different occurrences wherein the SBA disaster loan program comes into effect - two of which are presidential declarations (authorized by the Stafford Disaster Relief and Emergency Assistance act) and three SBA declarations.

Which specific declaration is being announced could influence how much is available to borrow, but it won’t affect the terms of the loan, nor are certain caps offered because of the type of declaration.

Who qualifies for SBA disaster loans?

That depends on which disaster loan you’re applying for! The SBA offers a great deal of different disaster loans for a variety of different events and circumstances.

At the moment, any business in a US state or territory where a disaster has occurred is able to apply, though that doesn’t mean that you’ll get accepted.

According to the official SBA website, reasons for eligibility for an Economic Injury Disaster Loan (EIDL) include:

  • “Substantial economic injury means the business is unable to meet its obligations and pay its ordinary and necessary operating expenses”
  • “EIDL provides the necessary working capital to help small businesses impacted by a disaster survive until normal operations resume.”

For the most recent Covid-19 EIDL loan, there are specific rules, and the following businesses qualify to apply:

  • Small businesses
  • Non-profit organizations of any size
  • US agricultural businesses with 500 or less employees that have “suffered substantial economic injury as a result of the COVID-19 pandemic”

When it comes to all other disasters that the SBA offers loans for, things are a little different. Those who are eligible to apply for them include:

  • Businesses of any size that are located in the declared disaster areas
  • Private non-profit organizations
  • Homeowners or renters affected by a declared disaster (which includes natural disasters like flooding, wildfires, and hurricanes, as well as civil unrest)

Remember, you have to be able to prove that your business has genuinely been impacted greatly by the disaster you are claiming under, though it is no longer the case that you must not be able to obtain a loan from anywhere else to apply.

There will also be collateral required for any loans over $25,000. This is usually real estate, though anything less than $200,000 means the business owner does not have to use their own home itself as collateral if there are equal assets to be used.

Any assets used instead of property do need to be of the same or greater quality as the real estate would be, and also have a value that is either equal to or greater than the cost of the entire loan itself.

Once you have applied online, in order to assess how much money is required, an official SBA inspector will be sent to the site of the property to estimate the cost of damages - you can’t just ask for a random amount of money, naturally.