Economic Injury Disaster Loans: Who Is Eligible?

If you’re the owner of a small business, small agricultural cooperative or private nonprofit organization of any size and have suffered considerable economic injury as a result of a physical or agricultural production disaster recognized by the Secretary of Agriculture, then you may be eligible for one of the SBA loans through the Economic Injury Disaster Loan (EIDL) Program. Considerable economic injury means that you’re unable to meet your business obligations as they arise and maintain your ordinary and necessary operating expenses.

The mission of the U. S. Small Business Administration (SBA) provides that affordable, timely and accessible financial assistance is available to homeowners, renters and businesses following a disaster by way of low-interest, long-term SBA loans through its Office of Disaster Assistance (ODA). The SBA disaster loan program is the only form of SBA assistance that is not limited to small business finance. The SBA is the primary means of federal assistance for the repair and rebuilding of disaster losses in the private sector, farming excluded.

The purpose of this article is to provide an outline of the factors that determine eligibility for an EIDL. An application pertaining to specific variables must be submitted for review. If the application is approved, a loan is arranged to cover specific expenses like payments on short-term agreements, accounts payable and installment payments on long-term agreements. The intent of an EIDL is to assist you in meeting your necessary financial obligations that could have been met had the disaster never occurred. 

Factors that Determine Eligibility

The SBA determines your eligibility after an evaluation of your situation. Various things related to your financial obligations will be considered, including total debt obligation, operating expenses that come due during the time frame affected by the disaster and working capital required for this period. Your financial position as well as that of any partners, officers or directors who hold more than 20 percent interest will be evaluated, and all partners, officers and directors will become guarantors of the loan. It’s expected that all parties use their own resources to the greatest ability without causing undue hardship before any consideration is given to a loan. Assistance is provided only to those that the SBA deems unable to obtain credit from another source. The rate of interest on an EIDL cannot exceed 4 percent per year, nor can it exceed a 30-year term. The term is based on an individual’s ability to repay the loan. 

Other Requirements

An important thing to note is that if you live in a designated flood area and you were legally required to maintain flood insurance but failed to do so, then you will not be eligible for a disaster loan. Another important condition to be aware of is that a penalty for misusing these funds is immediate repayment of one and a half times the amount of the loan, so it’s imperative that you understand what the loan can be used for and that you maintain accurate records of all expenditures for a full three years from the initialization of the loan.

How Do I Apply?

A certified or preferred lender is your best bet to help you through the application process, as these lenders have handled it many times and are familiar with the loan requirements. You can learn more about the lenders and conditions in your area by visiting the SBA’s website at www.sba.gov.