SBA Economic Injury Disaster Loans: What They Are & How They Work

Economic injury disaster loans (EIDLs) are loans issued to businesses that cannot continue normal operations or satisfy financial obligations as a result of a declared disaster. To be eligible, you must be in a declared disaster area and be unable to obtain credit elsewhere. Small businesses, agricultural cooperatives, and nonprofit organizations can be considered.

If approved for an EIDL, you can use the loan proceeds for business-related expenses such as processing payroll, repairing equipment, or making debt payments. Loan amounts up to $2 million are available with terms up to 30 years. The maximum interest rate is 4% with no prepayment penalties or fees.

How Economic Injury Disaster Loans Work

When a federal disaster is declared, a number of events must occur for businesses to get funding from an EIDL. Impacted areas and qualification requirements must also be determined at the federal and state level. These items vary based on the scope of economic injury of the disaster. Businesses can then apply for an EIDL directly through the SBA, at which point applications are reviewed, a decision made, and funds disbursed if approved.

1. Federal Government Declares a Disaster

When the federal government declares a disaster, the type of assistance that’s offered will depend on the extent and impact of the disaster. Disasters can include landslides, wildfires, hurricanes, earthquakes, storms, tornadoes, and droughts. These disasters usually result in one or a combination of physical damage to property or economic injury.

You can use the SBA website to view current declared disasters.

2. State Government Applies for Federal Assistance

To receive assistance and allow businesses to get an EIDL, individual states must make a request to the federal government. States must conduct a preliminary damage assessment to determine the extent of the damage, impacted locations, and its effect on businesses. It must also prove that the scope of the disaster is beyond the capabilities of the state such that federal assistance is required.

Once this information has been obtained, the SBA will provide documents outlining qualification requirements, eligible counties and application deadlines. The SBA will also provide details for loan terms, such as interest rates and repayment terms.

3. Business Applies for Funding

Unlike other types of SBA loans, EIDL loans are handled directly through the SBA. You can visit the SBA’s website on disaster loan assistance to submit an application. The website also contains resources on different types of loans, declared disasters, qualification requirements, and more.

4. SBA Reviews the Loan Application

After you have submitted an application, it can take between two to four weeks to receive a decision from the SBA. If the impact of the disaster is severe, a small portion of funds may be released up front, with the remainder of your requested loan proceeds pending a full review and approval from the SBA. The process can take several weeks, so it’s important to not delay submitting your application.

5. SBA Issues Funds

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’ll 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.

6. Loan Enters Repayment

EIDL loans usually have a short period of time in which no payments are required. This is typically between three and six months and varies depending on the scope of impact of the declared disaster.

EIDL Loan Qualification Requirements

Getting a business loan can be difficult depending on the qualification requirements, but EIDL loans have easier requirements than most loans.

Qualification Requirements
Loan Terms

Minimum Credit Score	570 625 for loans greater than $500,000
Minimum Time in Business	None
Minimum Business Revenue	None, but must be sufficient to repay the loan
Collateral Required	Yes, required for loans greater than $25,000

Loan Amount	Up to $2 million
Repayment Term	Up to 30 years
Interest Rate	Not to exceed 4%

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 to business: You must have suffered economic injury to the point that you’re 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 of 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 it has a value equal to or greater than the size of the EIDL loan.

Exhaust Other Financing Options

EIDLs aren’t 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 (P&L) 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 isn’t the right fit for you, here are other types of disaster loans you can consider:

Home and personal property loan: If your home or property has been damaged, you can be eligible for assistance even if you aren’t a business owner. Homeowners can get up to $200,000 to replace or repair a primary residence, and up to $40,000 to replace or repair personal property.
Business physical disaster loan (BPDL): Unlike EIDLs, BPDLs are available to businesses of any size and offer up to $2 million in funds that can be used for repair or replacement of business property such as machinery, equipment, fixtures, and inventory.
Military reservists economic injury loan (MREIDL): You can apply for this type of loan if you’re unable to meet normal operating expenses as a result of an essential employee being called to active duty. Businesses can receive up to $2 million in funding, although the SBA can waive that restriction in extreme circumstances.

Bottom Line

If you cannot obtain financing from other lenders, an EIDL can provide affordable financing for businesses impacted by a disaster. Funds obtained through this type of 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 so that you can get funds quicker.