If you are a small business owner, a natural disaster could be devastating to your business. It is possible for any business to be impacted by a disaster. There is help in the form of an SBA Disaster Loan. Whether it’s a fire, flood or another natural disaster, many businesses do not reopen after a disaster. In fact, according to the Federal Emergency Management Agency (FEMA), nearly 40% of small businesses don’t re-open after a disaster.
If this happens to you, thankfully there is a process to apply for a Small Business Administration (SBA) disaster loan. The process to apply for disaster assistance for your small business can be confusing, especially if you’re dealing with the aftermath at the same time.
Step One: How to Qualify for Disaster Recovery Assistance
To officially qualify for a SBA disaster loan, your business or home must be in an affected area as stated by a disaster declaration at the Small Business Administration’s disaster declaration website. A natural disaster is defined by the SBA as a major event caused by the natural processes of the Earth including extreme weather. Examples include floods, hurricanes, tornadoes, volcanic eruptions, earthquakes, tsunamis and other geologic processes. Damage to your business during a storm or other natural event that is not declared a disaster would not be eligible for a disaster loan.
If the disaster that you’re recovering from hasn’t been declared, then you should look for other funding alternatives including contacting your insurer to begin the claims process. There are flexible funding options available for business owners that can help in these cases too. Don’t forget to look at your tax situation. Depending on the time of year, you may be able to write-off losses or apply for tax relief due to your situation. The IRS has a page dedicated to this information.
Step Two: Getting Back to Work
Your disaster might be declared in due time, in which case you will become eligible for an SBA Disaster Loan, but don’t wait on looking for other options to recover.
The first thing to do is plan ahead with a business continuity and recovery plan. There are also many other free templates you can choose from. Having this completed could be the difference between your business succeeding with recovery and joining the 40% of companies that never reopen. After you develop the plan, you have to put it into place following disaster.
Secondly, as soon as safely possible, get started with the recovery process. Every day your small business is closed increases the chances it won’t recover. You can secure your business and make repairs that can minimize further damage. Save receipts for all expenses you incur and make sure to take inventory of all your equipment and property. Take photos of any and all damage. After a natural disaster has been declared, you can apply by mail, in-person (at a disaster center) or online at the SBA’s secure website or call 1-800-659-2955 or email DisasterCustomerService@sba.gov
Apply and Get Funded Next, as you are completing the application, you need to know that as a small business, small agricultural cooperative, small business engaged in aquaculture, or private non-profit organization you may borrow up to $2 million for Economic Injury. There are no upfront fees or early payment penalties charged by SBA. The repayment term will be determined by your ability to repay the loan.
After applying, the SBA will review your credit before conducting an inspection to verify your losses or will estimate the total physical loss to your disaster damaged property. A loan officer will determine your eligibility during processing & after reviewing any insurance or other recoveries you may have received. The SBA can also make a loan while your insurance recovery is pending.
Lastly, the loan officer works with you to provide all the necessary information needed to reach a loan determination. One positive attribute of a disaster loan is that unlike a typical SBA loan, the process can be completed in a much quicker time period; often it can be made within 2 – 3 weeks & the loan officer will contact you to discuss the loan recommendation and your next steps. You will also be advised in writing of all loan decisions. The SBA will prepare and send your Loan Closing Documents to you for your signature. Once your signed Loan Closing Documents are received, an initial disbursement will be made to you within 5 days. You can receive $25,000 for both physical damage and economic injury. The SBA will assign a case manager to work with you to help you meet all loan conditions. They will also schedule subsequent disbursements until you receive the full loan amount. Your loan may be adjusted after closing due to your changing circumstances, such as increasing the loan for unexpected repair costs or reducing the loan due to additional insurance proceeds.
More Options for Business Owners to Consider
If you seek alternatives to an SBA disaster loan, whether you were denied the loan or you want to try to look for better financing options, you’ll find you do have a variety of other options. With a loan from an alternative source, you may even be able to get your funds faster. There are all kinds of small business loans available, whether you’ve experienced a disaster or not.
You may need to provide additional paperwork as you go through the process. If you don’t have access to the paperwork or if it was destroyed, FEMA can provide support and guidance or you can contact Biz2Credit for guidance.
- Business Loan Application (SBA Form 5) completed and signed by business applicant
- IRS Form 4506-T completed and signed by Applicant business, each principal owning 20% or more of the applicant business, each general partner or managing member and, for any owner who has more than a 50% ownership in an affiliate business. (Affiliates include business parent, subsidiaries, and/or businesses with common ownership or management).
- Complete copies, including all schedules, of the most recent Federal income tax returns for the applicant business; an explanation if not available.
- Personal Financial Statement (SBA Form 413) completed, signed and dated by the applicant (if a sole proprietorship), each principal owning 20% or more of the applicant business, each general partner or managing member.
- Schedule of Liabilities listing all fixed debts (SBA Form 2202 may be used).
Keep in mind that there might be more information required to process your loan application. In particular, be sure you have these items prepared:
- Complete copies, including all schedules, of the most recent Federal income tax returns for your business.
- If the most recent Federal income tax return has not been filed, a year-end profit and loss statement and balance sheet for that tax year is often acceptable.
- A current year-to-date profit and loss statement.
No matter how you’re planning to get the funds to recover from disaster, there are many resources available to you and plenty of people and organizations rooting for you. Take advantage of disaster financing for your business and use the resources in your community to get back on your feet and back to business.