The U.S. Small Business Administration (SBA) has announced the availability of federal disaster loans to businesses and residents in California following President Biden’s declaration of disaster. The loans are intended to help individuals and businesses recover from the damages caused by natural disasters. Here’s everything you need to know about the available disaster loans:
Loan Types Available
The SBA has authorized two types of loans for disaster recovery in California:
- Business Physical Disaster Loans – These loans help businesses repair or replace disaster-damaged property, including real estate, inventories, supplies, machinery, and equipment. Businesses of any size and private, non-profit organizations such as charities, churches, and private universities are eligible.
- Economic Injury Disaster Loans (EIDL) – These working capital loans are intended to help small businesses, small agricultural cooperatives, small businesses engaged in aquaculture, and most private, non-profit organizations of all sizes meet their ordinary and necessary financial obligations that cannot be met as a direct result of the disaster. These loans are intended to assist through the disaster recovery period.
Credit Requirements for SBA Disaster Loans
Loan Requirements To be eligible for these loans, applicants must have a credit history acceptable to the SBA, show the ability to repay all loans and provide collateral for physical loss loans over $25,000 and all EIDL loans over $25,000. SBA takes real estate as collateral when it is available. However, the SBA will not decline a loan for lack of collateral but requires you to pledge what is available.
Loan Terms The law authorizes loan terms of up to 30 years. However, the law restricts businesses with credit available elsewhere to a maximum 7-year period. SBA sets the installment payment amount and corresponding maturity based on each borrower’s repayment ability.
Loan Amount Limits
Business loans are limited to $2,000,000 for repairing or replacing real estate, inventories, machinery, equipment, and all other physical losses. Subject to this maximum, loan amounts cannot exceed the verified uninsured disaster loss. EIDLs are limited to $2,000,000 for alleviating economic injury caused by the disaster.
The actual amount of each loan is limited to the economic damage determined by the SBA, less business interruption insurance, and other recoveries up to the administrative lending limit.
Loan Eligibility Restrictions
Only uninsured or otherwise uncompensated disaster losses are eligible. Any insurance proceeds required to be applied against outstanding mortgages are not available to fund disaster repairs and do not reduce loan eligibility. However, any insurance proceeds voluntarily applied to outstanding mortgages reduce loan eligibility.
Secondary homes, personal pleasure boats, airplanes, recreational vehicles, and similar property are not eligible unless used for business purposes. Property such as antiques and collections are suitable only to the extent of their functional value.
Amounts for landscaping, swimming pools, etc., are limited. Applicants who have not complied with the terms of previous SBA loans may not be eligible. This includes borrowers who did not maintain flood and/or hazard insurance on previous SBA loans.
Disasters can happen anytime, and the aftermath can devastate individuals and businesses. Fortunately, the SBA is here to help. If you’re a business owner or resident in California and have suffered losses due to natural disasters, consider applying for disaster loans from the SBA. You can rebuild your life and business and move forward confidently with the right loan.