SBA Disaster Loans: The Unofficial Guide for Freelancers & Startups

We know more than a few entrepreneurs and freelancers who’ve been caught with their pants down by coronavirus. Luckily the federal government has provided help in the form of disaster relief loans– money any small business can borrow directly from the U.S. Small Business Administration at a very low 3.75% interest rate– no bank approval required.

In keeping with the times, the feds have provided little guidance on how SBA loans work– especially for startups and the self-employed. We think this is unfair and are continually updating this document with everything you need to know to apply for an SBA disaster loan- all in FAQ format.

Update: Based on the passing of the CARES Act by Congress today, there are several positive changes to SBA disaster loans:

  • Loans can now be approved based solely on your personal credit score
  • Loans less than $200,000 can be approved without a personal guarantee
  • You’ll be able to request a $10,000 emergency cash advance that can be forgiven if spent on paid leave, payroll, increased costs due to supply chain disruption, mortgage or lease payments or repaying obligations that cannot be met due to disruption from from coronavirus.

Cover Photo via Wunderstock Free Photos

What are the basic details?

You can apply for SBA coronavirus loan online here. These disaster loans are much friendlier than your typical loan:

  • Borrow up to $2 million
  • 3.75% interest rate
  • Up to 30 years to repay loan
  • No payments for the first 12 months
  • Pay back any time with no early payment penalties

Given the average student loan interest rate is 5.8% and a typical mortgage is 3.8%, this is a great deal. It is definitely worthwhile to apply even if you aren’t sure you need the money now.

Tip: There’s no requirement to take the money if approved.

How much money can I get?

Based on what we’ve heard so far, businesses will get approximately 50% of gross profit or 3-6 months of expenses. The SBA has not released exact numbers as of yet, though.

Gross Profit = Revenue - Costs of Goods Sold (or Service Costs)

The great thing here is that gross profit is all money your business makes before fixed costs (equipment, rent, etc.) and before taxes. For service providers, this only includes costs directly related to customer projects.

Tip: Since the SBA only looks at gross profit (not net profit), you can qualify for quite a bit of money even if your business isn’t super profitable.

How long does it take to be approved?

The official timeline is 3-4 weeks, but given the unprecedented scale of events lately, who knows.

Where can I apply?

You can apply online via this link. The application website is often overloaded. Your best bet is to access the page either very early in the morning or very late at night.

You’ll also need a printer to sign an authorization form for the SBA to get your business tax returns from the IRS. The IRS is still finicky about accepting digital signatures.

Tip: If you get an error, during the application process, it is most likely because you didn’t fill something in– even if it’s a “0” for a field that doesn’t apply.

Is my business eligible?

Have no employees? You can apply. Have 400 employees? You can apply as well.
Photo via Wunderstock Free Photos (CC-BY-NC-SA)

As long as your business has been affected by the coronavirus, you can apply for an SBA disaster loan. This includes freelancers and sole proprietors with no employees.

Key requirements:

  • Business must be >1 year old
  • Business must have <500 employees (small can be pretty big!)
  • Marijuana, gambling, adult entertainment, and other similar great things are excluded

The key here is that there must be a direct impact to the business. Although you can still apply even if you aren’t in hot water today, you’ll need to show you have existing obligations (office rent, employee salaries, etc.) that may create issues later.

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My startup just launched or is preparing to launch– am I really out of luck?

Not necessarily. Although the SBA prefers to see at least a year of activity, you can still get a loan if you can show that your launch was derailed by coronavirus (source). You will need to show a business plan and financial projections showing how coronavirus adversely impacted projected sales.

Tip: You’ll need to show that your product or service would have gained traction without coronavirus. You’ll need a realistic business plan created before the crisis showing this. We recommend working with an accountant and contacting the SBA before applying.

So I don’t need an LLC, corporation, or other business entity to apply?

That’s correct– you do not need a business entity. Many small businesses do not have a formal entity established and this loan program is specifically designed to help small businesses. All you need is your Social Security number and your latest tax return (2018 or 2019).

Keep in mind that you will still need to provide revenue figures and show expenses– this should normally be shown on Schedule C – Profit or Loss from Business (Form 1040).

Any self-employed economic activity counts.

What can I use the money for?

Even if you don’t need the money now, it’s wise to apply to just in case.
Photo Credit: Wunderstock Free Photos (CC-BY-NC-SA)

The SBA disaster loan is designed to cover your regular operating expenses– most commonly payroll for employees (including yourself), fixed costs like rent, and money you owe to other businesses or freelancers.

You can’t use the money on new projects or to expand. You also can’t use the loan to cover personal expenses like rent or student loans. Any salary you pay yourself or home office reimbursements should count, however.

Tip: Examples of eligible expenses include coworking, that huge AWS bill you have coming up, money you owe your web designer, and even your own salary.

Do I need an office or storefront to qualify?

The SBA requires applicants to have a “tangible and significant” presence in order to qualify. P.O. Boxes do not count. We assume that virtual mailboxes and offices also do not qualify.

Home offices and coworking spaces do count as a physical presence. There is no need to have a traditional office or public storefront.

If your office address is a mailbox, don’t fret. You still qualify if you have another presence (working from home, coworking space, etc.). In this case use the mailbox as the mailing address and your home address as the business address.

Tip: As long as you work somewhere in the U.S., you qualify for the loan, even if you have used a mailbox as your business address in the past.

Search millions of free photos for your startup, blog, or whatever with Wunderstock

Do I need to be a U.S. citizen?

Not necessarily. According to the SBA, U.S. citizens, non-citizen nationals, and “qualified aliens” may apply. The SBA isn’t even sure what “qualified alien” means and recommends you consult Appendix 7 of this document to find out.

You can even apply as a non-citizen if you own a U.S. company and live overseas, which should be helpful to many startups. This is true even if none of the founders are American citizens. Any owners present in the U.S. must have a legal status, however.

Am I required to take a loan if I apply?

Nope. Once approved, you can take as much or as little of the loan as you want. So you should definitely apply even if you aren’t sure you’ll need the money.

Can I apply on behalf of multiple businesses?

Yes. You just need to list every business you have an interest in on all applications.

If you are self-employed and have multiple hustles, combine them only if you do so in your Schedule C when filing taxes.

Are non-profits eligible?

Yes, but charitable non-profits are excluded. The interest rate for non-profits is 2.75%.

What other relief is available?

You can also withdraw up to $100k from your 401k penalty-free.
Photo: Wunderstock Free Photos (CC-BY-NC-SA)

In addition to the SBA small business loan program, there are a variety of other programs and incentives available to help get through these tough times:

  • Tax Credits for sick leave: Congress has authorized tax credits to pay for employee sick leave and quarantine– up to $5k per employee. This money is even available to sole proprietors who employ themselves. More info here.
  • Penalty-Free 401k withdrawals: Congress has waived the 10% early withdrawal penalty for 401k plans- up to $100,000. You can also put this money back into your 401k any time in the next 3 years without affecting your contribution limit.
  • Pay your taxes late: Tax day has been moved from April 15 to July 15. There’s no need to pay until then– no matter how much you owe.

We’ll update this document as more information becomes available. Since we don’t know how many businesses will apply for a covid disaster loan, we highly encourage you to submit an application now rather than wait. Even if you don’t need the money now, this is an excellent opportunity to gain some peace of mind for your startup or small business.


Join the discussion and tell us your opinion.

March 27, 2020 at 10:44 pm

Have you heard any updates on collateral for these loans?

March 28, 2020 at 12:07 am

The SBA link for corona virus disaster loans (one level below the top level link) is throwing an error message and has no provision for login if you’ve previously registered, or wish to register. Probably saturated with demand. I have a partially completed online application I can’t get to. Patience is required.

March 28, 2020 at 1:02 am

Charitable non-profits are eligible, according to the SBA:

March 28, 2020 at 1:52 am

Thanks !!!!!!!!!

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