Business owners and individuals that are affected by a declared natural disaster have the ability to apply for SBA disaster loans. SBA disaster loans are designed to have both low interest rates and long terms. This enables small business owners and individuals to recover from a natural disaster. Small business owners and individuals that have insurance have the ability to apply for an SBA disaster loan. In addition to the insurance coverage that they might have. Below are the top 5 reasons that your business might not be eligible for an SBA disaster loan.
Previous Borrowing History
Many business owners and individuals have borrowed from lenders, credit card companies, or even the SBA in the past. Whether you were borrowing money for a car, a home, or you were just using your credit card for day to day purchased. Each of the lenders were reporting on personal and business credit. If you have any previous defaults, modifications, or showed an inability to pay previous creditors, the SBA is going to deem you ineligible for an SBA disaster loan.
In order to qualify for an SBA disaster loan your business must an entity that is operating for profit. If your business operates as either a publicly traded company, a non-profit entity, or a foreign registered entity, you will not be eligible to apply.
Personal Credit Score
Although the SBA disaster loan programs are designed to help business owners and individuals that need financing, the SBA is still looking for a source of repayment. Business owners or individuals that are considered sub-prime and have less than a 660 FICO score will be ineligible for an SBA disaster loan. Showing your ability to pay back the loan to the SBA is a crucial part to the underwriting process.
In addition to having an above average credit score, the SBA will require collateral for an SBA disaster loan. This is similar to many of the programs that the SBA offers to small business owner, such as the SBA 504 and SBA 7(a) loan programs.
Your personal credit score will show the SBA that you pay your bills in a timely fashion, but by looking at the businesses historical cashflows the SBA will be able to determine if you will be able to support the debt moving forward. Typically the SBA will look at your ability to service debt through a debt service coverage ratio, or a DSCR. The minimum DSCR over the previous 3 years will be in the 1.10 to 1.15 range. The higher the number, the strong the cash flow! A historical cashflow analysis is the best way to determine what the future cashflows of a business will look like.
SBA Disaster Loans Conclusion
The above is just a few of the qualifications, but to learn more about the program, click here for an in depth overview of the different types of SBA disaster loans that are available to both individuals and small business owners.
If you feel like you don’t qualify for an SBA disaster loan, SMB Compass is here to help. We’ve helped hundreds of small business in the country and we can certainly help yours too! Feel free to contact us through email at email@example.com or via phone at 888-853-8922.