SBA Economic Injury Disaster Loans: What You Need to Know

The Small Business Administration (SBA) offers Economic Injury Disaster Loans (EIDLs) during times of economic crisis. The SBA makes these loans directly to small businesses that have been impacted by an economic disaster to save them from failure. These loans often are made in the wake of a physical disaster, like a hurricane, although the federal government can authorize EIDLs even when no physical disaster occurs.

To aid businesses impacted by the COVID-19 pandemic, President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) into law on March 28, 2020. The act created the SBA 7(a) Paycheck Protection Program Loan—a modified SBA 7(a) loan—to provide small business owners access to as much as $10 million in funding, which could be forgiven if the loan is used to fund payroll. The aid package also includes other relief, such as Economic Injury Disaster Loans, as well.

What SBA Economic Injury Disaster Loans Are

Economic Injury Disaster Loans are one type of disaster loan offered through the SBA. These SBA loans can provide up to $2 million in funding to small businesses and nonprofit organizations that have suffered losses because of a federally declared economic crisis. Funds can be used to pay fixed debts, payroll, accounts payable, and other business-related expenses. EIDL loans have a fixed interest rate of 3.75%, and repayment terms can extend up to 30 years.

COVID-19 SBA Economic Injury Disaster Loans

To aid small businesses during the COVID-19 pandemic, the SBA has made Economic Injury Disaster Loans available nationwide to small businesses. All 50 states and the District of Columbia have been approved for EIDL assistance under the COVID-19 declared disaster.

SBA Economic Injury Disaster Loan Qualifications

Disaster loans have lower minimum qualifications than traditional SBA loans. While there is no set minimum credit score or time in business requirement, business owners should have enough business history to show economic damages and a long enough credit history to show timely payments with suppliers and creditors.

Additionally, the SBA may require business owners to carry hazard insurance on their collateral. Commercial property insurance typically fulfills this requirement. However, businesses in states that require coverage for specific hazards, such as earthquakes, windstorms, and hail, often need a separate policy.

SBA Economic Injury Disaster Loans Rates & Terms

EIDL Emergency Advances/Grants

As part of the CARES Act, you may request an emergency advance of up to $10,000 to be paid to you within three days of application submission for an Economic Injury Disaster Loan. This advance can cover expenses for ongoing operations.

If you get the advance, the funds can pay for:

• Employee paid sick leave
• Employee retention and payroll
• Increased costs because of supply chain issues
• Rent or mortgage payments
• Repaying an obligation that cannot be met because of lost revenue

If an advance is disbursed, and the application is denied, the advance need not be repaid.

How SBA Economic Injury Disaster Loans Work

EIDL loans are only available upon federal declaration. Sometimes, as with Hurricane Katrina, EIDL loans are offered in conjunction with a physical disaster that has had wide economic impacts. In other cases, like the COVID-19 pandemic, these loans are offered based on widespread economic injury. Regardless of the disaster, the six-step process for an SBA Economic Injury Disaster Loan remains the same.

1. The Federal Government Declares the Disaster

Following a major natural or economic disaster, the federal government declares an official disaster. At this stage, small business owners still can’t apply for funding. However, you should begin to complete some forms required for any disaster loans so that those are ready when you are allowed to apply.

2. State Governments Apply for Inclusion

State governments can apply and get certain counties included for the disaster to ensure that small business owners can access capital. At this stage, the SBA releases a document that details the affected counties, dates of application, specific relief information, and interest rates for the applicable disaster loan.

3. Small Businesses Apply for Funding

Unlike other types of SBA loans, where you apply for funding through a lender, SBA EIDL loans are issued directly through the SBA. You can apply online through the SBA Disaster Loan Assistance Portal. You’ll be required to download and complete several forms that you will upload to complete your application.

The following forms are required as part of your SBA EIDL loan application:

• SBA Form 159D: Fee disclosure form and compensation agreement
• SBA Form 413D: Personal financial statement
• IRS Form 4506-T: Request for transcript of tax returns
• SBA Form 2202: Schedule of liabilities
• SBA Form 1368: Additional filing requirements

4. The SBA Reviews the Loan Application

The SBA advises that it may take two to three weeks for your disaster loan application to be reviewed and acted upon. Sometimes, as with COVID-19, the SBA offers to provide up to $10,000 in immediate relief pending the application. In these cases, small business owners can get quick funding, which later will be considered part of the loan amount.

While the SBA is the driving force behind this application process, there are some things that you can do to increase the processing speed. Be attentive and ensure that any requests from the SBA are handled accurately. Taking a long time to complete a request or sending in an incomplete application can delay the processing.

5. The SBA Issues Funds to the Small Business

Loans that the SBA approves then move to the funding stage. The SBA will transfer funds to the provided bank account. This process needs to happen on a business day, which does not include banking holidays. For this reason, a late Friday approval may delay the transfer of funds until Monday morning.

6. The Loan Enters Repayment

Payments on your SBA disaster loan begin four months after receiving the loan. During this four-month period, your loan will accrue interest. The SBA can defer payments for up to 15 months based on individual applicant circumstances.

Bottom Line

The SBA Economic Injury Disaster Loan is available to help small business owners overcome a declared economic disaster. Disaster loans became available most recently during the COVID-19 outbreak. However, economic disasters are declared regularly for different parts of the nation. The key to getting funding is a thorough and well-prepared application and a sound plan for repayment.