The U.S. Small Business Administration (SBA) offers disaster loans to businesses that have been affected by major events. The loans provide operating capital to get you through a hard time. What can you do with the loan? What happens if things don’t turn around, though? Can SBA disaster loans be forgiven?
How do SBA Disaster Loans Help Your Business?
First, you need to understand what an SBA disaster loan covers to help your business. They help keep your business going during and after a disaster. They can be used to rebuild if damages aren’t covered by FEMA ( Federal Emergency Management Agency) or insurance. They also help you cover operating expenses that were lost because of the disaster.
They are low-interest-rate loans to get your doors back open and keep you going until you can start making money naturally after the disaster. Most of the SBA coronavirus loans are economic injury disaster loans, which are known as EIDLs. They help business owners meet financial obligations that they couldn’t due to the pandemic.
Part of the EIDL grant is a new program called the Paycheck Protection Program (PPP). These are loans that were explicitly meant to keep your payroll going and keep your employees hired during the shutdowns from COVID-19. They are incredibly low interest but have a narrower use then EIDLs.
If you are wondering how to apply for an EIDL grant, follow the steps shown here, and you will get started on the process. If you need funds for other reasons, you can look into asset based loans or account receivable financing. If you already have one and need SBA economic injury disaster loan forgiveness, please continue reading.
Can SBA Disaster Loans be Forgiven?
Some SBA Disaster loans do qualify to be forgiven. You have to check before you take any loan to ensure that it offers forgiveness and what the parameters are for that feature.
For EIDL forgiveness, there are a few parameters. The only part of the loan that can be forgiven is the EIDL Advance. The rest of the EIDL loan does not qualify, and that part has to be paid off over 30 years.
The PPP is eligible for forgiveness as well. If the company uses the entire loan on the allowed bills within a period of 8 to 24 weeks after disbursement, you could qualify for forgiveness. All you have to do is apply for it up to ten months after your payment period.
Terms and Facts You Need to Know
The following are terms and facts you need to know about SBA disaster loans:
How Much Can You Get?
The specific amount you can get from an economic disaster loan is affected by many factors. Your SBA EILD grant will consider what you lost during the disaster, how your business does in a typical year, and your credit history to set an amount. However, the maximum amount you can get for EIDL is $150,000. You can get the lesser of 2.5 times your monthly payroll costs or $10 million for PPP.
How Long Is the Loan?
SBA loan payments can be set at a few different dates. Your PPP can be over two or five years. Your EIDL is over 30 years. EIDL is payment free for 12 months after you get them. The PPP is payment free for ten months after the end of the covered period, either 8 or 24 weeks.
How Much is My Interest Rates?
Your SBA COVID loan has a low-interest rate. For your PPP, it is a fixed 1 percent. For your EIDL loan, it is 3.5 percent.
What Steps Can You Take to Prepare?
Wondering what steps you should take to prepare for SBA disaster loans? Here they are:
Before You Apply
There are a few documents you are going to want to have ready. Having all this information ready will make the SBA EIDL loan application go easier and move more quickly.
First, you want to make sure you have all your organizational documents ready. You will want information on how and how much your business has been affected by the crises. This proof includes lost revenues, canceled contracts, and supply chain interruptions.
You will then want financial statements ready, including your current bills and payroll information, income tax statements, and financial statements for the last three years. You’ll also need debt tables, cash flow info, and sales history.
Checking your credit reports could also be helpful, especially if you explain the negative scores they may have. Knowing your credit report is a good idea at any time, but before you seek a loan, it is essential.
Apply for the Loan
Once you have all this information, you will be ready to start your EIDL loan application. You can apply online, in person, or over the phone. Have all the paperwork you already gathered ready for this portion, and it will go smoothly.
Your Request is Verified
Your application will go through a verification process to make sure that everything is represented correctly. At this point, a loan specialist will consider your EIDL loan status and will decide whether you get the money or not.
If it is approved, you will sign for the loan, and you will get your initial money within five business days after closing. The loan terms can be adjusted depending on continuing changes with the disaster and your financial situation. This can include more money, different terms, and possible loan forgiveness.
Requesting Forgiveness on your SBA Disaster Loan
If you already received your SBA EIDL grant and wonder if an SBA disaster loan can be forgiven, you can apply and find out. The EIDL advance is forgiven from the start. All you have to do is keep documentation that proves it was used for the correct purposes. This may not be asked for directly, but it is important to have.
You will need your tax forms from the period, payment receipts, and account statements for all bills and payroll paid for with the payment. You will also need one of the SBA Forms 3508, 3508EZ, or 3508S. Your loan provider will let you know which one you need. Fill out the proper form, and your request for forgiveness will be reviewed.
Business can be a thrilling adventure, but it can cause a lot of stress when major disasters occur. When the worst happens, it can take everything you have to stay in business. Now that you know how to get an SBA loan and if SBA disaster loans can be forgiven, hopefully, you can get it and keep the doors open for years to come.