What are the SBA Disaster Loan Credit Score Requirements
Every year, businesses experience disasters that impact their financial future. Many financial relief options help keep them afloat. For example, SBA disaster loans provide a steady supply of funding. These loans help when disasters hit a business. But what are SBA loans, and what are the SBA disaster loan credit score requirements? And who qualifies for one of these loans when disaster strikes?
Understand these factors to get the best chance of applying for one of these loans. We'll discuss every element of SBA disaster loans, including the smallest credit score. Then, we'll show you how to apply and teach you everything you need to know about this process.
SBA Disaster Loan Credit Score Requirements
SBA disaster loans provide for small companies during disasters. These disasters will vary based on your situation. For example, events such as hurricanes, droughts, fires, and pandemics all qualify. During the COVID-19 pandemic, these disaster loans helped many companies. They helped pay salary, rent and kept business stay afloat.
Understanding SBA Disaster Loans and Their Purpose
An SBA disaster loan differs from other types of federal relief programs. Most of these programs provide relief by guaranteeing a percentage on other loans. In other words, they fix the loan's interest rate. This ensures that companies don't get overwhelmed by payments. Unfortunately, the government does not provide the money for these financing options.
That said, SBA disaster loans consist of money provided by the federal government. As a result, they must include these funds in the federal budget. This means available funds may fluctuate based on each year's financial situation. For instance, the federal government distributed more money to these loans during COVID-19.
Before applying for these loans, you must understand their many requirements. These factors include many elements, including SBA disaster loan credit score requirements. So let's take an in-depth look at these concepts to make your borrowing process easier. After all, if you don't qualify, there's no need to worry about the credit score requirements.
Requirements for an SBA Disaster Loan
Is it challenging to qualify for an SBA disaster loan? That depends. Some companies get loans very quickly, while others struggle. Most issues occur because of a lack of understanding. By grasping these loan requirements, you minimize your risk of denial.
You've Experienced a Declared Disaster
Did you experience a flood in your business due to a burst pipe? Unfortunately, you don't qualify for an SBA disaster loan. Instead, your business must operate in a declared disaster zone. In other words, the federal government must declare the area to be in disaster before you can qualify. When does the federal government declare a disaster zone? Usually in situations like when:
- Hurricanes damage many buildings and disrupted daily life
- Earthquakes destroy buildings and streets in your area
- Wildfires make business operations impossibly dangerous
- Floods affect your business and the surounding area
- Intense droughts threaten the health and safety of residents
- Tornadoes create a broad range of damage throughout an area
- Typhoons impact daily life throughout a specific zone
- Tidal waves wash over an area and make it unlivable
In other words, a declared disaster impacts many people and makes life tough. For example, a hurricane flooding a city may knock out the electrical grid. In this situation, the area is likely a declared disaster. So don't bother applying for an SBA disaster loan unless you've experienced one. And if you have experienced a disaster, you need to show proof of damage.
Your Business Suffered From Physical Damage or Economic Harm
It isn't enough to be in a declared disaster zone. Your business must also suffer real physical damage or economic harm. So, if your business is in a disaster zone, but you didn't experience any problems, you cannot get an SBA disaster loan. What counts as covered physical damage or economic harm? Many things, including:
- Damage to your office or work area that makes operation impossible
- Parking problems that impact your customer presence
- Staffing issues caused by the disaster, such as a lack of workers
- Loss of income while your office gets repaired
- Any other economic or physical loss not covered by your insurance
That last fact is essential before applying for a loan. All applicants must file an insurance claim before applying for help. The SBA disaster loan then covers whatever your insurance does not. You must also show proof that you suffered from damage or economic loss. Pictures of your damaged office help, as do your financial records after the disaster.
| Event | Number of Events | Fatalities | Economic losses | Insured losses |
|---|---|---|---|---|
| Severe convective storm | 51 | 106 | $49,323 | $35,000 |
| Tropical cyclone | 12 | 73 | $40,059 | $21,600 |
| Wildfire, drought, heatwave | 19 | 43 | $22,959 | $13,900 |
| Flooding | 4 | 8 | $5,292 | $2,200 |
| Winter storm | 4 | 6 | $1634.1 | $930 |
| Earthquake | 4 | 0 | 152 | 58 |
| Total | 94 | ~250 | $119,000 | $74,000 |
Number of Events - Natural disasters that cause at least $25 million in insured losses; or 10 deaths; or 50 people injured; or 2,000 filed claims or homes and structures damaged.
Economic Losses - Includes any direct physical damage or direct net loss business interruption costs.
Insured Losses - Includes losses sustained by private insurers and government-sponsored programs such as the National Flood Insurance Program
Do You Need a Good Credit Score?
Now, we get to the SBA disaster loan credit score requirements. Before going into them, it is crucial to understand that personal and business credit scores differ. Your credit score may be pretty low, while your business score remains high. Do these factors affect your loan qualifications? That depends on the situation and the lender.
First, the SBA does not set a minimum on personal credit. For small business owners, this fact helps a lot. Many small companies operate with a handful of employees. Some may even be one person. Not worrying about personal credit helps to make qualification easier. That said, good credit does look more impressive to the SBA. It could sway their opinion in some cases. And other SBA loans provided by individual lenders may require good credit scores.
However, disaster loans typically focus on FICO Small Business Scoring Service results. These scores vary from 0-300. During prescreening, the SBA passes businesses with a cover of 155 or higher. Failing prescreening doesn't mean you cannot get a loan. Usually, if you qualify for a loan based on the other requirements above, you're likely to get a disaster loan.
Now that you understand these requirements, you must know how to apply for these loans. Thankfully, this process requires very little hard work. However, mistakes may cause denial and other issues. So please read through the following sections to better understand this process.
Applying for a Disaster Loan
Most people applying for an SBA disaster loan use the online portal. Here, you can submit the forms necessary to finish your application. Documents you'll need include:
- SBA Form 5
- IRS Form 4506-T
- Your most recent Federal income tax returns
- SBA Form 413, Schedule of Liabilities or SBA Form 2202
- Income Statements
- Employee Identification Numbers
- Sales Information
The SBA presents many of these forms digitally during your application. You'll need physical copies when applying by mail or in person. Digital applications typically need less time and may get approved quicker. All applications include a three-step process. These include:
- Sending in your application to the proper source
- Then, you must verify your property and loan eligibility
- And receiving the funds
The SBA streamlines this process to improve approval speeds. This step helps businesses get their money faster. After application, you get a loan officer who works with you during this process. They can help fix any application mistakes. They'll also verify your application and estimate your losses. Usually, they start by proving you're in a disaster zone and work with you to verify your losses.
In-person inspection speeds up this process and improves your chances of approval. Expect a wait of at least 1-3 weeks before getting any money. Payment occurs incrementally, meaning you don't get it all at once. Instead, the SBA provides regular payments to keep you afloat and cut your economic loss. Your loan officer helps set up this payment cycle with you and the SBA.
Payment Factors, Interest Rates, and Term Limits
Eligible businesses receive up to $2 million when approved for an SBA disaster loan. Your loan officer will work with you to decide how much money you should receive. Getting more will help you stay afloat, but you'll have more to pay back as well. So a good balance is necessary here. Your loan officer and the SBA will use your financial information to decide how much you receive.
Term lengths also vary, depending on your financial situation. Term limits max out at 30 years, but most people get a shorter repayment cycle. It all depends on your ability to pay. The SBA doesn't want to impact your financial success by creating a loan you can't pay back. So, they'll work with you and your loan officer to find the option that makes the most sense for you. In this way, you can pay back your money on time and run into minimal financial troubles along the way.
As for interest rates, the standard level is 3.75%. Nonprofit organizations receive 2.75% for SBA disaster loans. This lower amount helps nonprofits by cutting back on how much they pay. Even for a for-profit business, 3.75% is a typical and fair interest rate. It is usually impossible to find an interest rate of that level from a private lender during a disaster.
All payments need you to sign up at Pay.gov and set up a repayment schedule. This site lets you track your expenses and gauge when your cycle is over. You can also make payments ahead of time or increase your payment amount every month. Paying more each month helps to speed up your payment cycle.
Several Types of Disaster Loans
The SBA offers four different disaster loans. Most center on businesses and keeping them operational.
Home and Personal Property SBA Disaster Loans
Home and personal property loans help homeowners suffering from a disaster. They help pay for things like home repairs, vehicle replacement, and furniture installation. Coverage consists of anything that your insurance company won't cover.
Homeowners receive up to $200,000 with each loan to repair or replace a house. And they can receive up to $40,000 to pay for personal property. Renters can use this latter option, as well. They just need to apply and show proof of their loss when getting an SBA disaster loan.
Business Physical SBA Disaster Loans
Most SBA disaster loans fall under this heading. They cover any physical loss experienced during a disaster. For example, let's say your office experienced heavy flooding during a hurricane. This loan helps pay for their repairs or replacement.
These loans also pay for replacing business machinery, inventory, assets, or property. You can get up to $2 million based on the loan repayment terms set by your loan officer and the SBA. If you
Economic Injury SBA Disaster Loans
Did you experience operational troubles during a disaster? For example, were you closed during the COVID-19 pandemic? Or did you fail to operate after a serious fire or flood? Then, apply for one of these loans to get up to $2 million to help your company stay afloat.
Pay your employees, manage debt concerns, pay rent, and keep your facility operational. You cannot repair physical damage to your office with this loan, however. You may be eligible for both types, though you will have separate repayment plans for each.
Military Reservists Economic Injury SBA Disaster Loans
The SBA provides the Military Reservists Economic Injury Disaster Loan to help companies. It's available if one of their employees is in the reserves and must go to active service. The money provided varies based on how much your loan officer and the SBA decide you'll lose.
They check your business interruption insurance and operating capital. Then, they gauge how losing the employee impacts you. The SBA provides up to $2 million for companies under this loan program. However, most will qualify for far less, depending on the value of the employee.
Other Recovery Options Beyond an SBA Loan
Were you denied an SBA loan after applying? This frustrating situation may put you in a tough spot. However, SBA disaster loans aren't the only option available. Many financing options can provide you with the help you need to get back on track after a rough period.
Term Loan
Finding a choice requires a little homework. You need to make sure you have great credit and also find an option that makes the most sense for your needs. For instance, term loans may help companies not in a declared disaster area. It would help if you had great credit to receive these loans, however. And higher interest rates may make this option harder for some companies to handle.
Term loans take the form of both personal and business options. Seek out a business loan to get better interest rates and easier repayment schedules. If your company's credit score is poor, though, a personal loan may be a better option. This choice is best if your credit is high.
Revolving Line of Business Credit
Don't forget you can also take out a revolving line of business credit. This option lets you buy items and reset your credit limit once you pay off what you owe. Unfortunately, high-interest rates may deter some from this option. However, it is an excellent choice for those with low credit scores.
Some firms may provide equipment financing for companies going through a disaster. This financing model uses the equipment itself for collateral. So while these loans may be easier to get, you will lose the equipment if you fall behind on payment. Unfortunately, you don't get any money back you may have paid.
And you can't use these funds to repair your company, either. So this financing option is best if your business' interior got damaged. It also helps if you need to install new equipment to operate again. Otherwise, this loan's benefits may be minimal for many companies.
When all else fails, apply for FEMA disaster relief grants. These grants provide cash for those affected by disasters. The available money usually comes in much lower levels, however. That said, you won't have to pay back grants, as they are not a loan. Thankfully, this minimizes your financial struggles.
Keep Your Credit Clean with the Creditry Store
We Can Help You Find a Fair Loan
If you do not qualify for an SBA loan and need an alternative, we can help you. Our easy-to-use app sorts through various financial options for you. You'll learn about interest rates, application processes, and more. Then, you can apply for an opportunity that makes sense for your financial situation.
Simply download our app, sign up for a profile, and seek out different lending options. We include a streamlined search option that will make your quest easier. Use the information on our app to seek out a financial option that makes sense for your needs as a business.
Get Started on Your Financial Recovery
Don't let yourself struggle after a severe disaster. Instead, take control of your recovery with an SBA disaster recovery loan. Bad credit shouldn't hold you back here. Even if you don't qualify for this recovery, we can help you find a source that will suit your needs as a company.
When you rebuild your company in this manner, you help your area thrive as well. Besides, economic success often spirals to other segments of the market. This allows others to push through tough times. So don't be afraid to apply for an SBA loan and get yourself back on your feet in no time.