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How to Get a Physical Disaster Loan

What it is

A physical disaster loan is a loan provided for the repair or replacement of real property, machinery, equipment, fixtures, and inventory and leasehold improvements as a result of a physical disaster. The loans are provided by the United States Small Business Administration (SBA) and can reach $1.5 million. Disaster loans to repair or replace real property or leasehold improvements may be increased by as much as 20 percent to protect the damaged property against possible future disasters of the same type. SBA loans will also cover uninsured physical damage.

The interest rate for the SBA physical disaster loan is determined by your ability to obtain credit elsewhere, meaning commercial lending sources. Businesses that are able to obtain credit elsewhere cannot be charged interest. When the SBA determines that a business is unable to obtain credit elsewhere, a maximum interest rate of four percent may be applied to the loan. The maximum maturity in this case is 30 years. The actual maturity is based on an applicant's ability to repay the loan. Businesses that have suffered economic injury as a result of physical disaster, the interest rate cannot exceed eight percent or the rate being charged by commercial lenders in the private market. The maturity of these loans cannot exceed three years.

Who it's for

Many small businesses find themselves in need of a business loan at one time or another for a variety of reasons, and when disaster strikes circumstances can become even more desperate. If your business has economic injury as a result of physical disaster, you may be eligible for financial assistance from the SBA through a physical disaster loan.

What you need to do to apply

In order to be approved for an SBA physical disaster loan, a business must demonstrate that substantial economic injury has occurred. This means that the business is unable to meet its obligations as it matures and it cannot pay its ordinary and necessary operating expenses.

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