How to Get an SBA Disaster Loan (COVID-19)

By Bryce Warnes on May 5, 2020

Editor’s note: The EIDL program is currently closed and is not accepting new applications (unless you are in the agriculture business). However, we encourage you to apply for the Paycheck Protection Program.



Has your small business faced financial pressure due to the coronavirus pandemic? The U.S. Small Business Administration (SBA) has made disaster loans available for businesses in affected areas. Here’s how the loan works, who qualifies, how to apply, and how to get your loan forgiven if you default.

What is the SBA disaster loan program?

The SBA disaster loan program specifically serves people affected by natural disasters in the U.S. For COVID-19 relief, all small businesses, including sole proprietors and independent contractors, can apply.

You can borrow up to $2 million if your business is physically affected by a disaster (such as a hurricane or earthquake), or $2 million for economic injury. The SBA is offering the latter to small businesses affected by coronavirus and the resulting economic slowdown.

If you qualify, the interest rate for an SBA disaster loan is 3.75% for businesses, and 2.75% for non-profit organizations. SBA loans have fairly long terms—generally 15 to 30 years—in order to make them affordable for small businesses.

How can you spend your loan?

Your loan is meant to give you working capital to keep your business running during the pandemic. You can use it to cover payroll, make interest payments, pay rent—the SBA isn’t picky. Once you qualify for a loan, it’s up to you to decide how you use it to fill the gaps in your revenue.

Who qualifies for an SBA disaster loan?

You can apply for an Economic Injury Disaster Loan (EIDL) if you can demonstrate that your business has suffered severe economic hardship because of the pandemic. You no longer need to be unable to obtain loans from elsewhere (this requirement has been waived).

Also, independent contractors who work for a separate business (eg. real estate brokers) can qualify if they’re able to prove they’re separate from that business (eg. the brokerage).

Currently, businesses in all U.S. states and territories are eligible to apply.

How to apply for an SBA loan

You can apply for a loan through the SBA’s Disaster Loan Assistance portal. The initial application has been streamlined, and requires no forms to be submitted. You’re now also able to apply for an EIDL emergency grant, which provides up to $10,000 within three days of applying. The grant will not need to be repaid, even if you ultimately do not qualify for the SBA EIDL loan.

Once you apply, a loan officer will check your credit rating. Then they’ll check your income statements and tax returns to determine how badly your business needs the loan.

For loans over $200,000, the lender can require you post personal collateral. For loans under $200,000, you have the option of offering collateral if you believe it will increase the chances you’ll qualify for a loan, but the lender can’t request it.

That being said, the SBA won’t deny you a loan if you’re unable to come up with enough collateral; they’ll assess what you’re able to offer, and then take that as posted collateral.

After that, they’ll decide how much they’ll lend you.

Further reading: How to Fill out Your SBA Disaster Loan Application

How do I get my SBA disaster loan forgiven?

It’s uncertain what future measures, if any, the federal government will take to relieve business debt. As the response to the coronavirus pandemic develops, you may have more options available for getting your loans forgiven. But here is the way SBA loan forgiveness has typically functioned up to this point.

First, your business needs to shut down and dissolve. The SBA does not forgive the debt of businesses that are still in operation.

Once the bank has determined you won’t be able to pay back your loan, the SBA will step in to work with them.

The SBA will pay off 50-75% of your debt to the bank.

At this point, you can offer to pay off as much of the remainder of the loan to the SBA as you can. They can choose to accept or deny this offer.

If the SBA accepts your offer, they’ll set up an arrangement with you so you can pay back the loan in a timely manner.

After they pay off 50-75% of it, if the SBA doesn’t accept your offer to pay a portion of the remainder, they may move on to collection actions.

They’ll either use the Treasury Offset Program (TOP), or send you to the Fiscal Service department.

With TOP, any future tax refunds owed to you by the federal government will be taken to cover your debt to the SBA.

With Fiscal Service, the SBA may hire debt collectors, send collection letters, forward information to credit agencies, garnish wages, or even bring your debt to the Department of Justice to seek criminal prosecution.

Contacting the SBA

To get in touch with the SBA’s disaster loan customer service center, email disastercustomerservice@sba.gov, or phone (‎716) 843-4100.

Other COVID-19 resources


This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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