SBA Loan Rates for Disasters
Is your small business affected by the current coronavirus pandemic? Natural calamities and hazards are the biggest threats to businesses, especially small startups, with insufficient safety nets.
The SBA understands this, which is why they offer Disaster Loans to companies severely affected by disasters. You can then use the loan for operational expenses and costs that aren’t covered by FEMA.
In other words, these loans give you the working capital they need to avoid complete closure during or after a disaster.
Disaster loans cover two types of damage following a disaster—physical damage (destruction of equipment and facility) and economic damage (significant loss of income posing threats of closure).
You can apply for a disaster loan for physical damage to cover costs of repair or reconstruction of physical assets vital to your operation, and a disaster loan for economic damage due to high working costs until normal operations resume.
Current Rates for SBA Disaster Loans Intended for Businesses Affected by COVID-19 Outbreak
2020 was not kind to thousands of small businesses across the country. Right now, you are probably still struggling with the economic impact of the COVID-19 pandemic. Until it’s completely safe to resume full operations, the situation will remain the same, especially for small businesses with almost depleted working capitals.
If you are part of the many small businesses that need additional working capital to survive this pandemic, you can apply for Economic Injury Disaster Loans (EIDL) for COVID-19. It is essentially a disaster loan with some slightly different properties to tackle unique issues the pandemic presents.
Benefits of COVID-19 EIDLs
- General-purpose loan to cover accounts payable, bills, and fixed debts
- Low interest rates
- 3.5% (for profit)
- 2.75% (non-profit)
- Loan amount
- Up to $2 million with collateral
- Below $25,000 without collateral
- Fixed rates – no possible interest rate increase down the road
- Term length – up to 30 years (unlike SBA 7(a) and SBA CDC/504 loans, which usually come in 10 or 20 years term)
- Possible $10,000 advance (if you need the funds)
Current Rates of SBA Loans for Other Disasters
Disaster loans naturally have lower interest rates than other types of SBA loans, especially for non-profit organizations.
As previously explained, these SBA loans have fixed rates, which means their value won’t change throughout the loan’s life regardless of the economic situation. However, these rates may vary depending on your ability to qualify for financing elsewhere.
The maximum interest rate can go up to 8% if you have other possible fund sources, and 4% if you don’t.
This arrangement is quite reasonable since the SBA also factors in “urgency” and “opportunity” when determining loan amount and eligibility. You may get an even lower interest rate if you are borrowing money for a non-profit organization.
To give you an idea how this works, check out these interest rates for businesses in Mississippi and Tennessee that were affected by Tropical Storm Olga:
|Type of Loan
||With No Access to Credit Elsewhere
||With Access to Credit Elsewhere
|Non-Profit Organization Loans
|Economic Injury Loans — Businesses & Agricultural Co-ops
|Economic Injury Loans — Non-Profits
The SBA also considers the borrower’s business location and the type of disaster that affected them. Request for a fact sheet related to the said disaster, which you can use to estimate the loan’s possible interest rate.
Eligibility & Terms
Both for-profit businesses and non-profit organizations are allowed to apply for a disaster loan. To qualify, however, there are some basic eligibility requirements you have to meet.
First, you must prove that (1) your business is within a declared disaster area, and that (2) it has experienced physical or economic damage from the disaster.
Even if you are in a rather dire situation, the SBA must also (3) check if you can repay the loan. Lastly, they will have to (4) look into your credit score. Whatever interest rate you qualify for, you can use the loan to cover repair and recovery costs that aren’t covered by your insurance or by FEMA.
Before applying for a disaster loan, you should know the standard terms to expect. First, the loan can have a 30-year maximum term length and a $2 million maximum borrowing amount, as previously explained. However, if you have access to funds elsewhere, the maximum term length will be reduced to 7 years, and your interest rate may also go up to 8%.
The final amount SBA will offer you may ultimately vary, depending on your ability to repay the loan. If it turns out to be more than $25,000, SBA will ask for collateral.
Calculating for SBA Disaster Loan Rates
You should know by now that the SBA considers different factors when determining disaster loan rates. They do this to ensure that the terms are fair for all the parties involved, including the lending partners and the SBA itself.
Of the factors the SBA considers, the (1) disaster’s type and location are the most significant.
The SBA must first establish that your business is within the disaster zone. Then they will determine how much damage the disaster caused your business. From there, they can have an initial loan rate estimate, which can change when other factors come into play.
Next, (2) the type of business or organization you are also influences your disaster loan rate.
For-profit companies typically get higher loan rates, while non-profit organizations and small agricultural co-ops get relatively small loan rates, which (3) may increase depending on their ability to access other fund sources.
The SBA assigns higher interest rates to businesses and organizations, while homeowners have low interest rates.
Finding an SBA Disaster Loan
Before heading to an SBA office to apply for a loan, it’s best to check their Disaster Loan Assistance page to see if your business is within the declared disaster area. This way, you can determine if you are eligible for a disaster loan.
When you’re at least 80% sure that you qualify, you can use lending facilitators to allow the SBA to find a lender that can provide the financing you need.
Ineligible for a Disaster Loan? Here are the Loan Rates for SBA 7(a)
Do you need working capital, debt refinancing, and other forms of funding? Then, you should apply for the 7(a) loan program. The SBA partners with banks and other major financial institutions to provide low-interest loans to small businesses.
Under the 7a loan program, the SBA guarantees a portion of your loan. And depending on your qualifications, they also set limits on the loan’s interest rates, fees, and term lengths. Keep in mind that the SBA doesn’t directly loan you money from financial institutions. Instead, the latter decides to loan SBA money on their own accord.