Economic Injury Disaster Loans
SMALL BUSINESS ADMINISTRATION
ECONOMIC INJURY DISASTER LOANS
NONPROFIT ARTS ORGANIZATIONS AND ARTS-RELATED BUSINESSES
DESCRIPTION OF PROGRAM
The SBA Economic Injury Disaster Loan (EIDL) program provides financial assistance to small businesses and private nonprofit organizations that are unable to cover ongoing expenses as the result of a declared disaster. If your organization or business needs capital for fixed costs and necessary expenses until normal operations resume, an Economic Injury Disaster Loan may help.
The SBA can provide capital for:
Fixed debt payments
Payroll for employees
Officer (owner) salary
Mortgage payments or rent
You cannot apply for an EIDL to cover projected lost income or sales you would have made during the disaster and recovery. It strictly addresses expenses.
The SBA can provide up to $2 million to help meet financial obligations and operating expenses that could have been met had the disaster not occurred. Your loan amount will be based on your actual economic injury and your organization’s financial needs, regardless of whether the organization suffered any property damage. A business may qualify for both an EIDL and a Business Physical Disaster Loan with a maximum combined loan amount of $2 million. Interest rates on EIDLs do not exceed 4 percent per year, and loan repayment may be spread out over 30 years. Repayment terms are determined by your ability to repay the loan.
EIDL assistance is available only when the SBA determines your organization or business is unable to obtain credit elsewhere at reasonable terms and conditions in an amount necessary to recover from the disaster.
The SBA Disaster Loan Application process can be broken down into three stages:
Application: File your insurance claim and apply to the SBA (EIDL applications do not require a FEMA registration number). This could take several hours or days, depending on the state and availability of your financial records.
Review: The SBA will review your application and credit score and make a decision within two to three weeks.
Closure and disbursement: Once loan documents are signed, an initial disbursement can be made within five days.
The quickest and most efficient way to apply for a Business Physical Disaster Loan is through the SBA’s online portal. The most time-consuming part of this process will be gathering the financial statements and other paperwork required to complete the application.
IMPORTANT TIME-SENSITIVE STEPS
Application Deadline: Although SBA loan applications for physical damage must be filed within 60 days of the disaster declaration, EIDL applications can be filed up to nine months from the date of the disaster declaration.
File a claim with your insurance company immediately. Do not wait for your insurance company’s response to start the application process. If you do not have insurance, you may still apply for an SBA loan. You may be required to obtain insurance as a part of your SBA loan agreement.
DECISION POINT 1
IS THE PROGRAM LIKELY TO BE RELEVANT TO MY SITUATION?
Has there been a presidential declaration of disaster? If not, has the SBA made a disaster declaration?
Is your organization or business located within the disaster’s designated area?
Are you unable to earn income necessary to cover your ongoing costs as the result of a disaster?
If you have insurance, have you filed an insurance claim?
Do you foresee the ability to resume your normal operations within six
Do you feel confident that you will be able to start making loan payments within 12 months?
Are you able to borrow funds elsewhere? If yes, this may impact your eligibility or the terms of your loan.
Do you keep regular financial records, and do you have access to them to complete the application?
WHAT YOU NEED TO APPLY
The SBA recommends that you call to speak to a customer service representative before you begin the application process: 800-659-2955. You will need the following information to fill out the SBA Disaster Business Loan application:
Organization's name and Federal Employment Identification Number (FEIN)
Primary contact information
Insurance contact information
Business activity and number of employees
Information about criminal activity and prior federal loans
Consent to have your bank, insurance company, current and past employers, and other creditors release your information to the SBA for verification
Tax information authorization forms on principal owners, partners, or managing members
Three years of complete business or organization tax returns
Personal financial statements of principal owners, partners, or managing members
Information on debts owed
Other information that could be requested includes:
Complete tax returns for owners
Year-to-date financial statements
Monthly sales figures for three years
Financial forecast for what income will look like during the affected disaster period
DECISION POINT 2
IS IT WORTH MY TIME AND EFFORT TO APPLY?
If your organization or business cannot pay its ongoing expenses as a result of a disaster and you feel confident that the organization will return to normal operations within a year, an Economic Injury Disaster Loan is worth considering. With substantial loan amounts, low interest rates, and a long repayment period, the loan terms can be favorable even for debt-averse nonprofits.
The SBA disaster loan process is involved and can be time-consuming. It is best suited for organizations and businesses that have kept good records and have the capacity to endure the process and wait for the disbursements. If you are concerned about your ability to repay and the requirements you will have to follow to be eligible, you may find that a direct fundraising or crowdsourcing campaign is a better option. However, if you are a small operation and your community has been hit hard, an SBA loan may be your best alternative to having to close indefinitely. Knowing that it will take patience and some perseverance, the SBA loan can provide much-needed assistance. Seek guidance from your accountant and board of advisors about taking on an SBA loan.
Like any lender, the SBA will evaluate the amount of risk involved in taking your organization or business on as a borrower. You may face some hurdles in the process but these loans are designed to be accessible. You should apply to and work with the SBA, even if your organization has credit challenges and/or lacks collateral.
In order to qualify for an SBA disaster loan, the Small Business Administration will per- form a routine credit check to ensure that you and your business or organization meet the SBA’s credit requirements. If you or your organization or business have credit challenges, the SBA will consider other factors, such as recent income and your history of rent, utilities, insurance, and other payments, to determine whether or not you qualify.
If your organization is in need of an SBA disaster loan larger than $25,000, you will need to pledge available collateral. Collateral is any property or asset of value that a lender can use to secure a loan if there is substantial risk. For example, the SBA may consider your business property as collateral for a large loan. If your organization or business were unable to meet the terms of the loan, you would forfeit the collateral. However, the SBA will not decline a loan for lack of collateral.
As with any loan, the lender needs to consider your ability to pay back the loan in full. Some businesses will rebound quickly and be able to repay the loan easily, while others may need more money and more time to recover and adapt to the economic climate created by the disaster.
If approved, you must acquire and maintain certain kinds of insurance during the life of the loan, including but not limited to flood insurance or hazard insurance. If the disaster that caused the damage isn’t covered by hazard insurance, you will be required to obtain insurance against the specific type of event that caused the damage (e.g., earthquakes, which are not covered by general hazard insurance).
Other circumstances that may affect your organization’s ability to qualify include bankruptcy, criminal conviction in association with protests or “obscene” content, other arrests or criminal convictions, prior federal loans, and conflicts of interest if a spouse or family member works for the SBA.
Once approved, a case manager will be assigned to work with you to help you meet all loan conditions. They will schedule disbursements until you receive the full loan amount.
Payment on SBA loans usually begins 12 months from the date of loan closing. 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 if you receive funds from insurance.
SBA Disaster Loans carry low fixed interest rates set by law, and generally feature low fixed monthly payments. Interest rates may vary for different disasters and market conditions.
Should I wait for my insurance settlement before I file my loan application?
No. Do not miss the filing deadline by waiting for an insurance settlement. The SBA can approve a loan for the total eligible losses and later adjust the loan eligibility or amount if you receive insurance payments.
What is the interest rate?
For EIDLs, the interest rate and terms will depend on something called the “credit elsewhere test.” That refers to whether you as the borrower have the ability to borrow from non-government sources at reasonable terms and conditions, in an amount necessary to provide for your own disaster recovery. The SBA will determine whether you have credit available elsewhere.
What are the loan terms?
The maximum term is 30 years. However, the law restricts businesses with credit available elsewhere to a maximum 7-year term. The SBA sets the installment payment amount and corresponding maturity based upon each borrower’s ability to repay.
What isn't covered by EIDLs?
You may not use an EIDL to pay dividends and bonuses, disbursements to owners, acquisition of fixed assets, to repair physical damage (see Business Disaster Loans instead), for refinancing long-term debt, or paying down other federal loans.
What if circumstances change and my organization or business can't repay the loan?
If your organization struggles to recover or changed circumstances make it challenging to pay back your loan, you must stay in communication with your loan officer and come up with a workable payment plan. SBA Loans are not forgivable, and you don’t want to default.