DISASTER LOANS FOR BUSINESS

The U.S. Small Business Administration (SBA), created by Congress in 1953, was given a mandate to provide financial assistance to victims of disasters.

If as a direct result of a physical disaster, or as the result of an agricultural production disaster, designated by the Secretary of Agriculture, your business has suffered substantial economic injury, with or without actual physical damage, you may be eligible to apply for an Economic Injury Disaster Loan (EIDL). Substantial economic injury is the inability of a business to meet its obligations as they mature and to pay its ordinary and necessary operating expenses. These loans, however, are limited to small businesses and to small agricultural cooperatives.

The purpose of the loan is to permit you to meet necessary financial obligations which your business could have met had the disaster not occurred. EIDL's are working capital loans and are made only to provide relief from economic injury caused directly by the disaster and to permit you to maintain a reasonable working capital position during the period affected by the disaster.

No EIDL assistance can be made to a business which is determined by SBA to be able to obtain credit elsewhere.

EIDL assistance to businesses is limited to a maximum of $500,000 (together with any business physical disaster loan for damage from the same disaster). However, the actual amount of the loan will be based upon the business' actual economic injury and its financial needs. The interest rate on EIDL's may not exceed 4 percent per year.

The term of these loans may not exceed 30 years. However, the actual term will be set depending upon the ability of the business to repay the loan.

How may I use an EIDL loan?
The loan will provide you with operating funds until your business recovers. To the extent you could have made payments had the disaster not occurred, the loan may also be used to make payments on short-term notes, accounts payable, and installment payments on long-term notes.

How much money may I borrow?
An EIDL can be made for the amount of economic injury and operating needs, but not in excess of what the business could have paid had the disaster not occurred. In determining your eligible amount, SBA will look at (1) the total of your debt obligations, (2) operating expenses which mature during the period affected by the disaster, plus the amount you need to maintain a reasonable working capital position during that period, and (3) expenses you could have met and a working capital position you could have maintained had the disaster not occurred. The amount of your economic injury does not automatically represent the dollar amount of your loan eligibility, but SBA will evaluate the information you provide and determine the reasonableness of your loan request.

Must I submit a personal financial statement with my loan application?
Yes. SBA must review your financial statement and one for each partner, officer, director and stockholder with 20 percent or more ownership. SBA requires a business' principals to personally guarantee repayment of the loan and, in some instances, secure the loan by pledging additional collateral.

Must I sell assets which are not used in my regular business operations before I am eligible for an EIDL?
Availability of such assets will be reviewed by SBA to determine if part or all of your economic injury might be remedied by utilizing such assets. The business and its principal owners must use their own resources to overcome the economic injury to the greatest extent possible without causing undue hardship.

If I can borrow from a bank, am I still eligible for SBA assistance?
Private credit sources must be used as much as possible to overcome the economic injury. SBA can provide EIDL assistance only to the extent the business (and its principals) cannot recover by using its own resources and normal lending channels.

What are some prohibited uses of an EIDL?
You may not use funds to pay cash dividends or bonuses or for disbursements to owners, partners, officers or stockholders not directly related to the performance of services for the business. SBA will not refinance long-term debts and will not provide working capital which was needed by the business prior to the disaster, and thus is not disaster-related.

Is collateral required for an Economic Injury Disaster Loan?
Generally, Economic Injury Disaster Loans require the pledging of collateral to the extent available. Occasionally, very small EIDL's may be made on an unsecured basis. However, an EIDL loan will not be declined solely because available collateral will not adequately secure the loan, and a business will not be required to pledge more collateral than is necessary. SBA may decline a loan if a business has collateral available but refuses to pledge it.

How long will I have to pay off the SBA loan?
Your financial situation will be examined by SBA, and loan terms will be based on your needs and repayment ability. The maximum maturity of disaster loans is 30 years.

What kind of documentation should I use to show my losses?
You must furnish balance sheets and operating statements for comparative periods of time, so SBA can compare your financial condition and operating results preceeding the disaster with those during and since the disaster period. The specific requirements are contained in the EIDL application form.

If I receive an Economic Injury Disaster Loan, may I spend the loan money any way I want?
No. An Economic Injury Disaster loan is intended to help you maintain a secure financial condition until your business is back to normal. Your loan will be made for specific and designated purposes. Remember that the penalty for misusing disaster funds is immediate repayment of 1 1/2 times the original amount of the loan. SBA requires that you keep receipts and good records of all loan expenditures for 3 years following receipt of your SBA loan.

May I expand my business facilities or purchase a new line of inventory with an EIDL?
No.

If I show SBA that I am not making a profit, is that enough to qualify me for an EIDL?
No. Lack of profit by itself or loss of anticipated sales is not sufficient to establish substantial economic injury. Substantial economic injury occurs only when the business cannot meet current obligations because of the disaster. Indicators of economic injury might be a larger than normal volume of receivables, lower sales volume, slow inventory turnover and development of delinquencies in trade payables, current accruals and debt payments.

Are religious and non-profit organizations eligible for an EIDL?
No. Only profit-oriented operating small business concerns and small agricultural cooperatives may apply.

How soon will I know if I will get a loan?
That depends on how soon the business files a complete SBA loan application. We have to be able to calculate the amount of economic injury and the business' working capital and other needs. We have to be satisfied that the business can repay the loan out of its operations, and take reasonable safeguards to help make sure the loan is repaid. The SBA loan application asks for the information we need. The faster you can return it to us, with all the needed information, the faster we can work on it. We try to get all applications processed through to a decision not later than 60 days after they are filed. The ones that are filed early can be completed in a much shorter time. Be sure your application is complete because missing information is the biggest cause of delay.

How soon can I expect the money?
Because loans over $5,000 have to be secured, after a loan is approved we will tell you what has to be done (these are the loan closing documents, just like in any other secured loan). When the loan closing documents are returned to us, we can order the checks. Because these are subsidized loans, we will not give you all the money at once; we will give it to you in installments as it is needed.