SBA Economic Injury Disaster Loan Guide: What You Need To Know
Tom has 15 years of experience helping small businesses evaluate financing and banking options. He shares this expertise in Fit Small Business’s financing and banking content.
This article is part of a larger series on Business Financing.
Economic injury disaster loans are one type of disaster loan offered through the SBA. These loans are often made in the wake of a physical disaster, such as a hurricane, although the federal government can authorize EIDLs even when no physical disaster occurs.
These SBA loans can provide up to $2 million in funding to small businesses and nonprofit organizations. Funds can be used to pay fixed debts, payroll, accounts payable (A/P), and other business-related expenses. EIDL loans have a fixed interest rate of 3.75% and repayment terms can extend up to 30 years. The Small Business Administration (SBA) offers economic injury disaster loans (EIDLs) directly to small businesses during times of economic crisis to offset lost revenues. You can apply online through the SBA Disaster Loan Assistance Portal.
SBA Economic Injury Disaster Loan Qualifications
Disaster loans have lower minimum qualifications than traditional SBA loans:
- Time in business: In general, the SBA does not require businesses to be in operation for a certain length of time. However, if a disaster loan is authorized for a specific emergency, the SBA can establish a date where a business needs to have established operations to qualify.
- Business size: A business must meet the SBA’s requirements regarding either employee count or annual revenue to qualify. The general rule of thumb is that businesses need to have 500 or fewer employees or annual sales of less than $10 million.
- Annual revenue: The SBA requires businesses to have sufficient revenue to cover loan payments.
- Credit: In addition to a history of on-time payments and no delinquent federal debt, the SBA looks at credit scores as part of their decision-making process on EIDLs. For loans of up to $500,000, a FICO score of 570 is a general minimum standard. For loans of more than $500,000, the SBA’s minimum acceptable FICO score is 625. By comparison, most SBA loans through traditional banks require a minimum credit score of 680.
- Collateral: If the EIDL is more than $25,000, the SBA will use any available collateral that a borrower has. Loans of more than $200,000 will require the collateralization of personal real estate from the borrower.
SBA Economic Injury Disaster Loans Rates & Terms
Loan Type | Interest Rate | Repayment Term |
|---|---|---|
Economic Injury Business Loans | 3.75% | Up to 30 years |
Economic Injury Nonprofit Loans | 2.75% | Up to 30 years |
While the maximum repayment term on an Economic Injury Disaster Loan is 30 years, many loans will have shorter repayment periods. Repayment terms on SBA EIDLs are based on the amount borrowed and the business’s ability to repay.
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 process for an SBA economic injury disaster loan remains the same.
1. Federal Government Declares a 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, businesses can complete some of the required forms for any disaster loans in advance for when the application process officially opens.
2. State Governments Apply for Inclusion
State governments can apply to get certain counties included in 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 as part of the application. Once completed, the forms will then be uploaded 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 413: 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. SBA Reviews the Loan Application
The SBA advises that it may take four 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, ensuring that any requests from the SBA are handled promptly and accurately can improve the time it takes to get a decision on the application. Taking a long time to complete a request or sending in an incomplete application can substantially delay the processing of your application.
5. SBA Issues Funds to the Small Business
Once the SBA approves the loan, you will sign loan documents with the amount, term of the loan, and a personal guarantee that you will repay the note. After you sign the loan documents, the SBA will transfer funds to your bank account. Receiving funds from the SBA can take a few days. If the EIDL program has substantial demand, such as during COVID-19, loan funding may occur a couple of weeks after approval.
6. Loan Enters Repayment
Payments on your SBA disaster loan begin at least four months after receiving the loan. The SBA can defer payments for up to 18 months based on either individual applicant circumstances or through the SBA’s decision to extend deferrals for all disaster loans. During this period, your loan will accrue interest.
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. Having a thorough and well-prepared application, along with a sound plan for repayment, will improve the chances of getting funding. For other small business loan options, read our guide on 5 Steps to Get a Small Business Loan.
