Insurance may pay for some expenses, but you still may require additional financing. Thus, to fully afford to rebuild your business, you’re going to need additional capital. Due to this, a disaster loan from the Small Business Administration (SBA) may be a viable funding option. However, as with any financial decision, you should weigh the pros and cons of SBA disaster loans before you apply. In this post, we’ll review those pros and cons of SBA disaster assistance, so you can make a well-informed decision about how to afford your business’s disaster recovery.
What is an SBA Disaster Loan?If your business is damaged or destroyed due to a hurricane, flooding, fire, or drought, you could qualify for a SBA Disaster Loan. To qualify, you’ll need to prove that your business is in a declared disaster area. In addition, the SBA will want to know how your business has been negatively affected by this disaster. In some cases, small business owners can seek FEMA small business loans as well. Typically, you’ll only qualify for this program if you don’t qualify for other SBA loans. In addition to natural disasters, many business owners have sought disaster assistance due to the economical challenges caused by the COVID-19 pandemic. Currently, if you own a small business or non-profit based in the U.S. with 500 or fewer employees, you may qualify for the COVID-19 Economic Injury Disaster Loan (EIDL).
The Pros of SBA Disaster Loans
1. Affordable With Lenient Repayment TermsCompared to other working capital options, SBA Disaster Loans is an affordable financing option for loan applicants. In fact, if you meet the eligibility requirements, the interest rate won’t exceed four percent. A physical disaster loan from the SBA, on the other hand, carries a maximum loan amount of $2,000,000 and may be repaid over 30 years.
2. High Loan AmountsDisasters can be extremely expensive. In addition to the cost of replacing destroyed property or equipment, you’ll need to make up for downtime caused by the disaster. Without enough financing, you’ll be forced to allow any debts to accumulate interest. That’s why it's beneficial that SBA loans have a maximum of $2,000,000. You may not need the full amount, but having that flexibility ensures you’ll have what you need to rebuild.
3. Flexible Use of FundsThe SBA’s disaster loans can help you pay for almost anything needed after a disaster. For example, the Business Physical Disaster Loan can be used for these expenses:
- Real estate
- Personal Property
- Repairs or Replacements