Following a declared disaster, the U.S. Small Business Administration (SBA) provides low-interest loans to business owners in the declared disaster areas and adjoining counties to help them recover from both physical damage and economic injury to their businesses. Homeowners may be eligible for loans to repair their primary residences, and both homeowners and renters may receive loans to repair or replace personal property.
In general, your ability to receive an SBA disaster loan depends on two things:
- You must be able to document damage and/or business loss due to the disaster.
- You must demonstrate the ability to repay a loan.
The SBA disaster loan application (Form 5) will require you to prepare an itemized list of losses with an estimate of the cost to repair or replace each item. Include a contractor’s estimate for structural damage if you can.
In addition to the SBA loan application, you will need to provide copies of the documents specified in the disaster loan application filing requirements. The standard list includes:
- Copies of your three most recent federal income tax returns, including all schedules
- A completed and signed Tax Information Authorization (IRS Form 8821)
- A current business balance sheet or SBA Form 413, the Personal Financial Statement
- A current profit-and-loss statement
- A current list of liabilities or SBA Form 2202
- Current Personal Financial Statements (SBA Form 413) for each proprietor, each limited partner with 20 percent or more interest in the business, each stockholder with 20 percent or more of the business’s voting stock, and each general partner. If any of these is not a sole proprietor, it must also provide a complete federal income tax return.
- For each affiliate — such as business parents, subsidiaries, or other businesses with common ownership or management — a complete federal income tax return and a signed tax information authorization (IRS Form 8821)
In addition, applications for physical damage loans need:
- A description of the damage sustained by the business real estate and its contents
- Insurance information for any part of the loss that is covered, including the name of the insurer, policy number, and contact information for the insurance agent or claims adjuster. If you have them, also include copies of the policy’s declarations page and your proof of loss.
Applicants for economic injury loans must also submit:
- SBA Form 1368, additional filing requirements for Economic Injury Disaster Loan. This form calls for detailed information on monthly sales for three years prior to the disaster and up to the present month, and a financial forecast of income and expenses from the time of the disaster until the business is operating normally again.
- An explanation of the economic loss caused by the disaster, including an explanation of how the loan would be used. Since economic injury loans are made only to businesses that could not obtain credit elsewhere, but are still based on your ability to repay them, the more evidence of your financial claims you can provide, the better.
The actual requirements for a specific disaster may vary, however. For example, following Hurricanes Katrina and Rita in 2005, instead of asking for three years of tax returns, the SBA asked applicants only for the most recent one. Current requirements, as well as copies of many of the necessary forms, can be found on the disaster assistance page of the SBA Web site.
After making your initial application, be prepared to have the SBA ask for further information. If your loan is above $10,000, you will normally have to provide collateral, usually in the form of a mortgage on the business property. You will need to provide the same information you would to any other mortgage lender.
There may be different deadlines for applying for different types of disaster loans. (After Hurricane Katrina, for example, physical damage loan applications were due January 11, 2006, but economic injury applications were not closed until May 29, 2006).
According to the SBA, most delays in processing disaster loans are the result of missing information, so be sure your application is as complete as you can make it. One other caveat: Make sure to sign each form that requires a signature. The agency can’t process applications or supporting documents that arrive unsigned.
For more information on this topic, read Small Business Disaster Recovery Loans.
Remember: Earthquakes, hurricanes, floods, fires, and other types of disasters can strike without warning. Be sure to review our Disaster Kit Supply Checklist for a helpful list of recommended emergency supplies to have on hand in your office or workplace.