SBA economic injury disaster loans (EIDLs) are designed to provide funding to businesses that have suffered substantial economic injury as a result of a natural disaster. Funds can be used to cover ordinary and reasonable expenses to help the business survive until normal operations can be resumed. EIDLs are, however, only available to businesses that have been unable to get financing elsewhere.
You can get up to $2 million in funding from an EIDL. Loan terms can include a first payment deferral for up to 12 months interest-free, rates not exceeding 4%, and up to 30 years to fully repay the loan. You can apply for an SBA EIDL directly through the SBA online portal.
How SBA Economic Injury Disaster Loans Work
Given the fact that SBA EIDLs are government-issued loans, several things must occur at the federal and state levels in order for funding to be made available.
A natural disaster must first be formally declared before impacted states can apply for funding. Once completed, businesses can then individually apply for financial assistance, after which the SBA will review applications, issue funding, and then collect loan repayments.
Step 1: Natural disaster is declared by the federal government
Common types of disasters that can result in EIDL funding include hurricanes, floods, hail storms, tornadoes, wildfires, landslides, earthquakes, droughts, and more. Not all disasters will result in funding through the EIDL program. This will be dependent on the severity of the physical or economic damages incurred by businesses.
The SBA portal has a list of all eligible declared disasters.
Step 2: State governments apply for federal assistance
States that have been impacted by the disaster will need to apply for funding from the federal government. This ensures that sufficient funding is made available based on the extent of damage suffered. States must typically provide information on the estimated damages, geographical locations impacted, the specific impact on businesses, and why funding is needed.
Since states also typically have their own resources to deal with local disasters, they must also provide evidence that the scope of damage is beyond their capabilities to justify the need for financial assistance at the federal level.
Once states have applied for funding and provided the necessary information, the SBA will then release documentation outlining the requirements and eligibility criteria for its EIDLs.
Step 3: Individual businesses apply for funding
Unlike other types of SBA loans that are handled by private lenders, EIDLs are handled directly by the SBA. Businesses can visit the SBA’s website to learn more about EIDL loans, terms, and qualification requirements.
Step 4: Applications are reviewed by the SBA
The SBA generally takes between two and four weeks to review and issue a decision on EIDL loans. The length of time you need to wait before getting funding can also depend on the severity of the disaster and the volume of applications received by the SBA. As a result, it’s recommended that you apply for funding as soon as possible.
The SBA does recognize that some businesses may be in urgent need of funding. Because of this, it’s possible that it may agree to release a small portion of funds up front, with the remainder of any requested loan proceeds to follow later pending a full loan review.
Step 5: SBA issues funding to businesses
Once the SBA approves your loan, you’ll need to sign loan documents to confirm your acceptance of the terms such as the loan amount, interest rate, and repayment term. Once the documents are signed, they will be reviewed by the SBA for final review and approval for disbursement of funds. Depending on the volume of applications, it can take several days for funds to be sent to your bank account.
Step 6: Businesses begin making loan repayments
EIDL loans can allow for a first payment deferral of up to 12 months. Afterwards, businesses must make monthly repayments until the loan is fully satisfied. Businesses can also pay off the loan early, as SBA EIDLs carry no prepayment penalties.
Benefits of an SBA Economic Injury Disaster Loan
SBA EIDL loans are primarily meant to help businesses resume normal operations with less of a focus on profiting from lending funds. As a result, you’ll find that SBA EIDLs have very few prohibited uses, flexible eligibility criteria, and low rates and fees.
- Flexible use of proceeds: Proceeds from an SBA EIDL loan can be used for nearly any business expense necessary to keep the company operating. Common examples include working capital, continuation of health benefits, rent, utilities, and business loan payments.
- Easy qualifications: SBA EIDL loans do not carry the strict qualification requirements found in conventional loans. EIDLs have no minimum revenue requirements and can be issued to startups and those with bad credit.
- Low impact on business cash flow: EIDLs can come with a first payment deferral of up to 12 months, with no interest accrual during that time period. Additionally, you can get repayment terms up to 30 years for low monthly payments.
- Low rates and fees: EIDL loans have a maximum interest rate of 4%. There are also no prepayment penalties or fees.
EIDL Rates, Terms & Qualifications
Getting a small business loan can be difficult depending on the qualification requirements, but EIDL loans have easier requirements than most loans.
Business Qualifications
The SBA will review details of your business to determine its eligibility, such as its location, type of injury suffered, and industry.
- Business location: Your business must be located in a declared disaster area.
- Impact on business: You must have suffered economic injury to the point that you are unable to pay debts or ordinary operating expenses. This can include damage to business property or reduced revenue as a result of the declared disaster.
- Business type: Small businesses, agricultural cooperatives, and private nonprofit organizations can be eligible for an EIDL loan.
- Business size: You must meet SBA size standards. You can use the size standards tool on the SBA website, but a general rule of thumb is to have fewer than 500 employees and annual revenue less than $10 million.
- Business revenue: Your business must demonstrate a sufficient amount of income to repay the loan.
Credit
Details of your credit history, in addition to your credit score, will be evaluated. To get an EIDL, you must not be delinquent on any federal debt.
Credit score requirements can vary based on the details of the declared disaster, but you should have a score above 570 for loan amounts below $500,000 and a score of 625 for larger loans. These were the requirements set by the SBA for the COVID-19 EIDL.
Collateral
Loan amounts over $25,000 require collateral. This will usually be a business owner’s primary residence or other real estate owned. For loan amounts greater than $200,000, you may have the option to pledge other assets as collateral if they have a value equal to or greater than the size of the EIDL loan.
Other Financing Options Exhausted
EIDLs are not meant to be the first source of financing for a business owner. To get assistance from the SBA, you must show that you have been unable to obtain financial assistance from other lenders.
How to Apply for an EIDL Loan
EIDL loan applications can be submitted directly through the SBA online portal. To make sure the process goes as quickly as possible, you should prepare the following documents:
Required Forms
At a minimum, you’ll need to complete the following forms for your loan application to be considered complete:
- IRS Form 4506-T: Request for transcript of tax returns
- SBA Form 159: Fee disclosure form and compensation agreement
- SBA Form 413: Personal financial statement
- SBA Form 2202: Schedule of liabilities
- SBA Form 1368: Additional filing requirements form
Additional Documents
You may need to provide additional documentation once the SBA has completed an initial review of your loan application. Below are some examples of items you may be asked for:
- Tax returns (personal and business)
- Profit and loss statements
- Balance sheets
- Cash flow statements
- Bank statements
- Business licenses and industry certifications
Other Types of SBA Disaster Loans
An EIDL is just one of several SBA disaster loans. If it is not the right fit for you, here are other types of disaster loans you can consider:
- Physical damage loans: Funds can be used to cover damages to home and personal property. You do not need to own a business to be eligible, and you can get up to $500,000 to repair or replace a primary residence, or $100,000 to replace or repair personal property.
- Mitigation assistance: These are low-interest rate loans designed to pay for upgrades that can reduce or prevent damage from future disasters.
- Military reservist loans: If you employ military reservists who have been called to active duty, funds from this program can be used to cover operating expenses as a result of the reduction in personnel. You can typically get up to $2 million to cover ordinary and necessary operating costs.
Frequently Asked Questions (FAQs)
It typically takes between two and four weeks to get funding. However, this can vary depending on the volume of applications received by the SBA, as well as the severity and scope of the natural disaster.
Compared to traditional loans, it’s generally easier to get an SBA EIDL. EIDLs can be issued to businesses with bad credit, startups, as well as those with low revenue.
No. SBA EIDLs have rates that may not exceed 4%. You can also have your first payment deferred for up to 12 months with no interest accrual, low monthly payments with up to 30 years to fully repay the loan, and no prepayment penalties or fees.
Bottom Line
If you are unable to obtain financing from other lenders, an EIDL can provide affordable financing for businesses impacted by a disaster. Funds obtained through this SBA loan can help your business recover and resume normal operations. Getting this type of loan can take time depending on the extent of damage and volume of applications received by the SBA, so you should be prepared with the necessary forms and paperwork to get funds quicker.
