The government founded the Small Business Administration in order to help small businesses expand, mainly for the purpose of job creation and economic stimulation. In addition, it also serves to help small business owners attain expansion goals with some of its specialized programs. However, today, we will be discussing a specific type of disaster relief loan called the economic injury disaster loan.
Many of the SBA’s disaster relief loans are meant to aid those whose property has been damaged in a declared disaster region. For example, if a manufacturing facility were physically damaged during a flood, earthquake, hurricane, tornado, or fire, the Business Physical Disaster Loan program could help lend that business money in order to help it replace or repair the property that was damaged or lost. In some cases, however, a business’s physical property is not directly impacted by the disaster, but it is nonetheless set back. If a restaurant that serves seafood suffered from a seafood shortage due to an oil spill, or a fruit vendor had less produce to sell because of a major freeze that damaged the crops of his supplier, this is what is called “economic injury” in relation to a disaster. Even though the damage need not be direct, the business must be located in the relevant declared disaster area.
Businesses that have suffered economic injury in a declared disaster area may qualify for an Economic Injury Disaster Loan (EIDL). An applicant must be unable to cover regular operating costs due to the economic injury related to the disaster in order to be eligible. EIDLs are intended as a safety net until recovery from the disaster is possible and regular operations resume. Only businesses that are otherwise unable to obtain credit are eligible. Small businesses, not-for-profit institutions of any size, and small agricultural cooperatives can receive assistance. Agricultural cooperatives get help in the event of what the Secretary of Agriculture deems an agricultural production disaster.
Loan amounts depend on appraisal of the damage and the neediness of the recipient business. Eligible small businesses can be loaned a total of up to $2 million for economic and physical damage resulting from the disaster; one cannot stack both benefits for a sum of more than $2 million. The interest rates for economic injury disaster loans are no greater than 4% annually, and the terms are no greater than 30 years. Both are based on the borrower’s need and ability to repay.