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Everything You Need to Know About SBA Disaster Loans

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Everything You Need to Know About SBA Disaster Loans

A natural disaster often strikes with little warning, impacting businesses physically, financially, and economically. Learn how SBA disaster loans can help.

You don't want to think about what might happen when disaster strikes. After all, your business is doing well.

But when a natural disaster like Hurricane Harvey strikes, there may be a fallout in your business that's outside of your control.

Here, we're breaking down SBA disaster loans, how they work, and how they can help your business after a disaster.

SBA Disaster Loans

What Are SBA Disaster Loans?

First, let's cover the basics. What are disaster loans?

Provided by the U.S. Small Business Administration, disaster loans are special funds designated for the relief of businesses and homeowners in designated disaster areas following a flood, storm, fire, drought, or similar disasters.

Basically, it's funding earmarked specifically for businesses that do not have the means to remain operational as a result of a natural disaster.

What Is a Disaster Loan For?

Since the needs of a business following a natural disaster are diverse, the uses of a disaster loan are equally diverse.

These loans are designated to promote business continuity. As such, they can be used for any of the following:

  • Machinery
  • Equipment
  • Real estate
  • Fixtures
  • Inventory
  • Payroll
  • Fixed debts
  • Restructuring debt
  • Accounts payable coverage
  • Economic injury recovery
  • Military reservist economic injury recovery

Economic injury is for businesses that did not sustain physical damage but, because of the natural disaster, their business continuity is disrupted.

There's also a specific subset of economic injury recovery for military reservists, which is for businesses with employees who were called to active duty because of a disaster and whose operations are disrupted by their absence.

To be clear: disaster loans are for the express purpose of recovery after a disaster. Returning to the status quo, if you will. The loans cannot be used to expand your facilities or operations, though you may be eligible to receive additional funds for improvements that reduce your future risk.

Types of Loans

With this in mind, there are a variety of SBA disaster loans depending on what you need to accomplish. The types of disaster loans include:

  • Business physical disaster loans
  • Economic injury disaster loans
  • Military reservists economic injury loans

These are all long-term, low-interest loans. Most of them are available in amounts up to $2 million and are designated by specific uses.

Who Qualifies for SBA Disaster Loan Assistance?

With that in mind, who can qualify for one of these loans?

As a rule, any business that has incurred physical or economic damage could potentially qualify for a loan.

Even if your business has an insurance policy that you're waiting to find out about, the SBA still recommends that you apply for a loan. But keep in mind that if your insurance disbursement and the loan both come through, you'll have to apply the disbursement to the loan you receive.

In addition, if you have available credit elsewhere, you are still eligible to apply for a loan. However, because of this external credit, the SBA may grant you a loan at a higher interest rate.

How Do You Apply for Disaster Loans?

So, if you know that you need help from a disaster loan, and you know that your business stands a good chance of qualifying, how do you apply for a disaster loan?

The first step is to go to the US Small Business Administration website. Once you're there, you first need to find out if you're in a declared disaster area (even if your business did suffer from a disaster, if you're not in a declared disaster zone, you won't qualify).

To do this, simply search declared disaster areas.

If your business is in a declared disaster area, you can return to the homepage and click on "Apply for Assistance."

While you can apply by mail, the fastest way to receive a decision is by applying online.

You'll need to have access to the following information:

  • Contact information for all applicants
  • The Social Security numbers of all applicants
  • Your deed or lease information
  • Your FEMA registration number
  • Your insurance information
  • All of your relevant financial information, including monthly expenses and account balances
  • Your Employer Identification Number (EIN)

Once you have this information, you can start the three-part process:

  1. Apply online for the necessary loan amount
  2. The SBA reviews your application, verifies your total loss, and determines your loan eligibility
  3. The SBA prepares and sends your loan closing documents

Once the SBA receives your signed loan closing documents, the initial disbursement of $25,000 for physical or economic damage will be made. You'll also be assigned a caseworker to make sure you meet the loan conditions and to schedule future disbursements.

Interest and Repayment Rates

Now, with all of that in mind, let's talk about what kinds of interest and repayment rates you can get on a disaster loan.

In accordance with SBA rules, participating lenders set their interest rates based on the prime rate plus a markup.

So, if your loan is more than $50,000 and the term is shorter than seven years, your rate will be based on the prime rate with a maximum markup of 2.25%. As of December last year, the maximum rate for a loan like this was 6.75%.

If your loan is more than $50,000 but the term is seven years or longer, then the maximum markup is 2.75%. Last year, the maximum rates for loans like this were around 7.25%.

Now, because you're getting an SBA loan and not a loan through a private lender, you'll get a longer repayment period. The exact term depends on what the loan will be used for.

For daily operations loans, you'll have seven years. For new equipment purchases, you'll have ten years, and for real estate, you can have up to 25 years.

In general, the longer the repayment term, the lower the interest rate and the lower your regular payments will be.

Have You Defaulted on an SBA Disaster Loan?

If you have defaulted on an SBA disaster loan you will need assertive and experienced legal counsel when dealing with the federal government.

The good news is that you don't have to go through this frightening time alone. An SBA loan lawyer can help you manage these treacherous waters.

Take a look at our available services, or get in touch today to see what we can do for you.

Why Hire Us to Help You with Your Treasury or SBA Debt Problems?

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Millions of Dollars in SBA Debts Resolved via Offer in Compromise and Negotiated Repayment Agreements without our Clients filing for Bankruptcy or Facing Home Foreclosure

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Millions of Dollars in Treasury Debts Defended Against via AWG Hearings, Treasury Offset Program Resolution, Cross-servicing Disputes, Private Collection Agency Representation, Compromise Offers and Negotiated Repayment Agreements

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Our Attorneys are Authorized by the Agency Practice Act to Represent Federal Debtors Nationwide before the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service.

$50,000 SBA 7A LOAN - RESPONSE TO SBA OFFICIAL 60-DAY NOTICE

$50,000 SBA 7A LOAN - RESPONSE TO SBA OFFICIAL 60-DAY NOTICE

Client received the SBA's Official 60-Day Notice for a loan that was obtained by her small business in 2001.  The SBA loan went into default in 2004 but after hearing nothing from the SBA lender or the SBA for 20 years, out of the blue, she received the SBA's collection due process notice which provided her with only one of four options: (1) repay the entire accelerated balance immediately; (2) negotiate a repayment arrangement; (3) challenge the legal enforceability of the debt with evidence; or (4) request an OHA hearing before a U.S. Administrative Law Judge.

Client hired the Firm to represent her with only 13 days left before the expiration deadline to respond to the SBA's Official 60-Day Notice.  The Firm attorneys immediately researched the SBA's Official loan database to obtain information regarding the 7(a) loan.  Thereafter, the Firm attorneys conducted legal research and asserted certain affirmative defenses challenging the legal enforceability of the debt.  A written response was timely filed to the 60-Day Notice with the SBA subsequently agreeing with the client's affirmative defenses and legal arguments.  As a result, the SBA rendered a decision immediately terminating collection of the debt against the client's alleged personal guarantee liability saving her $50,000.

$488,000 SBA 7A LOAN - SBA OHA LITIGATION

$488,000 SBA 7A LOAN - SBA OHA LITIGATION

The clients are personally guaranteed an SBA 7(a) loan.  The SBA referred the debt to the Department of Treasury, which was seeking payment of $487,981 from our clients.  We initially filed a Cross-Servicing Dispute, which was denied.  As a result, we filed an Appeals Petition with the SBA Office of Hearings and Appeals asserting legal defenses and supporting evidence uncovered during the discovery and investigation phase of our services.  Ultimately, the SBA settled the debt for $25,000 - saving our clients approximately $462,981.

SBA Settlement: COVID-19 EIDL Resolved with Minimal Payment

SBA Settlement: COVID-19 EIDL Resolved with Minimal Payment

Our firm successfully facilitated the SBA settlement of a COVID-19 Economic Injury Disaster Loan (EIDL) for Train With Jodi Inc. The borrower received an SBA disaster loan of $150,000, but due to the severe economic impact of the COVID-19 pandemic, the business was unable to recover.

Despite the borrower’s efforts to maintain operations, shutdowns and restrictions significantly reduced the customer base and revenue, making continued operations unsustainable. After a thorough business closure review, we negotiated with the SBA, securing a resolution where the borrower paid only $6,015 to release the collateral, with no further financial liability.

This case demonstrates how businesses affected by the pandemic can navigate SBA loan settlements effectively. If your business is struggling with an SBA EIDL loan, we specialize in SBA offer in compromise (SBA OIC) solutions to help close outstanding debts while minimizing financial burden.

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