Business Physical Disaster Loans
SMALL BUSINESS ADMINISTRATION
BUSINESS PHYSICAL DISASTER LOANS
NONPROFIT ARTS ORGANIZATIONS AND ARTS-RELATED BUSINESSES
SBA Business Physical Disaster Loans are available to arts nonprofits and businesses. Individuals that do not have a business may be eligible for Home and Personal Property Disaster Loans.
DESCRIPTION OF PROGRAM
A disaster loan from the Small Business Administration is a low-interest loan offered at a point of extreme need with the aim of helping small businesses and nonprofits stay open and retain their property and other assets after a declared disaster. Businesses and private non- profit organizations of all sizes may apply for a Physical Disaster Loan of up to $2 million to repair or replace damaged real estate, inventory, machinery, equipment, furniture and fixtures. If you make improvements that help reduce the risk of future property damage caused by a similar disaster (“mitigation”), you may be able to increase your loan amount by up to 20 percent over the cost of the physical damages.
SBA disaster loans are for losses not fully covered by insurance or other sources. These loans carry low interest rates set by law, and generally feature low, fixed monthly payments. Interest rates may vary for different disasters and market conditions, but the interest rate on each loan is fixed for the term of the loan. Repayment generally begins 12 months after the date of the loan closing, during which time interest will accrue.
If your arts organization or business is located in a declared disaster area and experienced damage to your facility or property, you may be eligible for financial assistance from the SBA, even if you do not own your facility.
See examples of disaster mitigation improvements that might be covered by an increased SBA loan at ussba.github.io/brand/assets/sba/resource-partners/ disaster-mitigation-factsheet-508.pdf
The SBA Disaster Loan Application process can be broken down into three stages:
Application: Apply to the SBA and file your insurance claims. This could take several hours or days, depending on the state and availability of your financial records. If you are an eligible private nonprofit organization that will be pursuing FEMA Public Assistance, you must also create an account through the FEMA Public Assistance Online Grants Portal.
Review: SBA representatives will estimate the costs of damages, review your application and credit score, and make a decision within two to three weeks.
Closure and disbursement: Once loan documents are signed, an initial disbursement can be made within five days.
The quickest and most efficient way to apply for a Business Physical Disaster Loan is through the SBA’s online portal. The most time-consuming part of this process will be gathering the financial statements and other paperwork required to complete the application.
IMPORTANT TIME-SENSITIVE STEPS
Application Deadline: You must apply for an SBA Business Physical Disaster Loan within 60 days of the disaster declaration. If you are also pursuing FEMA Public Assistance, you must also meet the FEMA deadlines.
File a claim with your insurance company immediately. Do not wait for your insurance company’s response to start the application process. If you do not have insurance, you may still apply for an SBA loan. You may be required to obtain insurance as a part of your SBA loan agreement.
DECISION POINT 1
IS THE PROGRAM LIKELY TO BE RELEVANT TO MY SITUATION?
Has there been a presidential declaration of disaster? If not, has the SBA made a disaster declaration?
Has it been less than 60 days since the declared disaster?
Does your organization or business need to repair or replace real estate,
equipment, inventory, and/or fixtures damaged by the disaster?
Did the damage occur within the declared incident period?
Is your organization in the designated area?
If you have insurance, have you filed an insurance claim?
Does your organization or business have less than 500 employees?
Do you keep financial records and/or do you have access to your financial statements?
WHAT YOU NEED TO APPLY
The SBA recommends that you call to speak to a customer service representative before you begin the application process: 800-659-2955. You will need the following information to fill out the SBA Disaster Business Loan application:
Contact information for all applicants
Social Security numbers for all applicants
Property deed or lease
Employer Identification Number (EIN) for business applicants
Consent to have your bank, insurance company, and other creditors release your information to the SBA for verification
In order to qualify for an SBA disaster loan, the Small Business Administration will perform a routine credit check to ensure that your business or organization meets its credit requirements. If your organization or business has credit challenges, the SBA will consider other factors, such as recent income and your history of rent, utilities, insurance, and other payments, to determine whether or not you qualify.
SUPPORTING DOCUMENTS FOR ARTS-RELATED BUSINESSES
Tax information authorization forms on principal owners, partners, or managing members
Complete copies of federal income tax returns for the business
Personal financial statements of principal owners, partners, or managing members
Information on debts owed
SUPPORTING DOCUMENTS FOR ARTS NONPROFITS
Complete copy of the organization's most recent federal tax return or three years of "statements of activities"
Information on debts owed
Tax information on authorization forms for any affiliated organizations
DECISION POINT 2
IS IT WORTH MY TIME AND EFFORT TO APPLY?
With substantial loan amounts, low interest rates, and a long payback period, an SBA loan can provide much needed help, but not right away. The SBA disaster loan process is involved and can be time-consuming. It is best suited for organizations that have kept good records and have the capacity to endure the process and wait for the disbursements. If you are concerned about your ability to repay and the requirements you will have to follow to be eligible, you may find that a direct fundraising or crowdsourcing campaign is a better option. However, if you are a small operation and your community has been hit hard, an SBA loan may be your best alternative to having to close indefinitely. Knowing that it will take patience and some perseverance, the SBA loan can provide much-needed assistance. Seek guidance from your accountant and board of advisors about taking on an SBA loan.
Like any lender, the SBA will evaluate the amount of risk involved in taking your organization or business on as a borrower. You may face some hurdles in the process but these loans are designed to be accessible. You should apply to and work with the SBA, even if your organization has credit challenges and/or lacks collateral.
If your organization needs an SBA disaster loan larger than $25,000, you will be asked to pledge available collateral. Collateral is any property or asset of value that a lender can use to secure a loan if there is substantial risk. For example, the SBA may consider your business property as collateral for a large loan. If you were unable to meet the terms of the loan, you would forfeit the collateral. The SBA will not decline a loan for lack of collateral.
As with any loan, the lender needs to consider your ability to pay back the loan in full. Some businesses will rebound quickly and be able to repay the loan easily, while others may need more money and more time to recover and adapt to the economic climate created by the disaster. If you are having problems paying your current fixed expenses, also check out SBA Economic Injury Disaster Loans,
If approved, you must acquire and maintain certain kinds of insurance during the life of the loan, including but not limited to flood insurance or hazard insurance. If the disaster that caused the damage isn’t covered by hazard insurance, you will be required to obtain insurance against the type of event that caused the damage (e.g., earthquakes, which are not covered by general hazard insurance). The limited availability and cost of these types of insurance may be prohibitive for some organizations and businesses.
Other circumstances that may impact your organization’s ability to qualify are bankrupt- cy, criminal conviction in association with protests or “obscene” content, other arrests or criminal convictions, prior federal loans, and conflicts of interest if a spouse or family member works for the SBA.
Once approved, a case manager will be assigned to work with you to help you meet all loan conditions. They will schedule disbursements until you receive the full loan amount.
The first payment on SBA disaster loans is generally due 12 months from the date of the loan closing. Your loan officer will explain the deferral period that is in effect when you apply. Your loan may be adjusted after closing due to your changing circumstances, such as increasing the loan for unexpected repair costs or reducing the loan if you receive funds from insurance.
SBA Disaster Loans carry low fixed interest rates set by law, and generally feature low fixed month- ly payments. Interest rates may vary for different disasters and market conditions, but the interest rate on each loan is fixed for the term of the loan.
Do I have to apply to both FEMA and the SBA?
If your nonprofit organization has been hard hit by a disaster, you may be eligible for assistance from both the SBA and FEMA. As a noncritical private nonprofit organization (PNP), if an SBA loan does not cover your costs, FEMA Public Assistance may be available to cover the difference. Even if you cannot afford to take on an SBA loan, you will have to go through the SBA loan process to be eligible for any funding from FEMA. FEMA will only give you funding for the amount that the SBA Loan will not cover, whether or not you take the SBA Loan.
For-profit businesses are not eligible for FEMA Public Assistance and do not need to register through FEMA. They can go directly to the SBA.
Should I wait for my insurance settlement before I file my loan application?
No. Do not miss the filing deadline by waiting for an insurance settlement. The SBA can approve a loan for the total eligible losses and later adjust the loan eligibility or amount if insurance funds are received.
What is the interest rate?
For Business Physical Disaster Loans, the interest rate and terms will depend on something called the “credit elsewhere test.” That refers to whether you as the borrower have the ability to borrow from non-government sources at reasonable terms in an amount necessary to recover from the disaster without a hardship. The SBA will determine whether you have credit available elsewhere. Generally, interest rates on SBA disaster loans are well below market rates.
What are the loan terms?
The maximum term is 30 years. However, the law restricts businesses with credit available elsewhere to a maximum 7-year term. The SBA sets the installment payment amount and corresponding maturity based upon each borrower’s ability to repay.
Can I use an SBA Business Physical Disaster Loan to help expand my business?
No, you may not use the disaster loan to upgrade or expand a business, except as required by building codes.
What if circumstances change and I can't repay my loan?
If your organization struggles to recover, or changed circumstances make it challenging to pay back your loan, you must stay in communication with your loan officer and come up with a workable payment plan. SBA loans are not forgivable, and you don’t want to default.