Small businesses play a central role in sustaining the economy. These businesses are the majority and they create employment for most people in the country. Did you know that 47.3% of the private workforce in the country work for small businesses?
Despite the important role these businesses play, they have the most fragile financial systems. And this is evident during the pandemic that has forced most of these businesses to either close shop or scale back on their operations. The surviving ones are in desperate need of financial aid to stay afloat.
The government appreciates the role of small businesses in nation-building and that’s why they rolled out the SBA loans disaster relief program.
Would you want to learn more about the SBA disaster loan and the requirements for securing it? Read on.
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SBA Loans Disaster Relief: What Is It?
Small businesses owners face a constant threat of financial and physical damage to their business because of natural disasters. Saving the business during these times of hardships is a tall order for most business owners. Their limited resources aren’t sufficient in most cases to keep the business as a going concern.
The SBA disaster loan program provides economic relief to these businesses after the occurrence of detrimental events. The relief is in the form of low-interest-rate loans for businesses to use to get back on their feet.
The government grants SBA loans only to businesses that can demonstrate they’ve suffered a substantial economic injury. This refers to a situation where a business can’t meet its obligations and cover its operating expenses due to the adverse effects of a disaster.
Getting a loan through the SBA program has some similarities to the way you secure a traditional loan. The SBA acts as a mediator between your business and lending institutions. It helps your business to find a potential lender who’ll put your request into consideration.
Once the lender approves your request, the SBA guarantees the loan to cushion the lender. This is an incentive for lenders to extend credit to small businesses. The guarantee assures lenders that they’ll recoup their investment even if you default on payments.
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SBA Loans Disaster Requirements
For you to get the disaster loan assistance SBA, your business must satisfy certain conditions. Most of these conditions are easy to satisfy. They include:
1. The Location
All applicants for the loans program must be in the United States physically. It’s possible to apply from a location outside the states but must first designate it as a territory of the United States. Being in the United States physically is only the first step in establishing your eligibility.
SBA disaster loan programs don’t apply to all areas within the United States. Only people who are in areas that have been designated as disaster zones will qualify under the loans program. So before applying, check that your businesses fall within areas that are disaster zones under the SBA program.
2. Personal/Businesses Information
Applying for the SBA loans can be intense because of the extensive documentation you’ll have to present. But this is all in good faith as the government needs to verify applicants are not fraudsters. The first documentation you’ll need is your financial statements and your identification information.
Once they’ve verified these documents are in order, you’ll have to present the business documentation. Some of these include the schedule of liabilities, documents showing the legal business entity type, and the tax identification number. Ensure that you have the business’s most recent filed tax returns as you’ll be requested for them.
3. Collateral
The requirement for collateral shouldn’t come as a surprise if you’ve been taking a loan from financial institutions before. However, for SBA loans, the rules are a bit different. Traditional financial lending institutions will need collateral for any amount you borrow.
This isn’t the case when taking loans under the SBA loans program. You won’t have to provide any collateral for a loan sum of $0 to $25,000 under this program.
For amounts of $ 25,001 to $500,000, a collateral applies. The rules stipulate that SBA files a security interest against the assets of your business with the Secretary of State.
For amounts of $500,001 to $2,000,000, the SBA will file a security interest against your business’s assets. SBA will also require a security agreement lien for the best available mortgage on real estate owned by your business.
4. Personal Guaranty
This is an agreement that binds another individual to repay the loan in case your business defaults on the loan repayment terms. This agreement remains in place until your business completes the loan repayment. For loan sums below $ 200,001, there’s no need for a personal guaranty.
Every stakeholder who owns 20% or more of your business will have to provide a personal guaranty for loan sums above $200,000. If everyone has a stake of less than 20% in the business, then the entity or one of the individuals must provide the guaranty.
5. The Credit Score
As with personal guaranty, the minimum credit score for applying for loans varies. You should have a credit score of at least 570 if you apply for loans of $500,000 or less. For these loans, your repayment ability will be subject to your exact credit score
For loans greater than $500,000, you’ll need a credit score of 625 and above. SBA performs a cash flow analysis for your business in this case to determine your ability to repay. The analysis will also shed light on your business’s current debt obligations.
Stay Afloat With SBA’s Loan Program
We can’t understate the importance of small businesses in the economy. Without them, millions of people will be unemployed while the government will miss out on its revenue in form of taxes. It’s a tragedy that small businesses are the first ones to crumble during natural disasters.
If you are a small business owner struggling to stay afloat during this pandemic, there’s a silver lining on the horizon in the form of SBA loans disaster relief program. Funding from this program will breathe a new lease of life into your operations.
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