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Small business loans aren’t just for funding or expanding a business. A small business loan, along with disaster loans, can help small businesses recover from a natural disaster like a tornado.

As one of the states in Tornado Alley, Oklahoma is a prime target for tornadoes, leaving small businesses susceptible to damage and destruction. Unfortunately, these tornado outbreaks don’t just occur in rural areas as was once thought. Oklahoma’s two largest cities, Oklahoma City and Tulsa, were home to severe storms and tornado outbreaks in 2022, as were Bryan, Choctaw, Cleveland, Le Flore, McCurtain, Pottawatomie, and Pushmataha Counties.

Oklahoma Governor Kevin Stitt had to declare most of these areas a disaster so that homeowners and business owners could qualify for federal aid and assistance and low-interest disaster loans. Oklahoma is also home to the third-deadliest tornado on record, which hit Moore, Oklahoma, in 2013 and caused $2 billion in damages.

Besides the physical destruction that tornadoes and other natural disasters can cause, the economic damage from a singular tornado can be one of the most devastating things to happen to a small business owner. Everything you’ve worked hard to build for years can be wiped out in an instant.

Thankfully, there are disaster loans that can help fund and rebuild your business should a tornado impact it. Here’s more about how Oklahoma tornado small business loans work.

Mitigating Impacts on Your Small Business Before and After a Tornado Strikes

Though you can’t control Mother Nature or the effects that a damaging tornado or natural disaster can have on your business, there are steps you can take to minimize the losses to your business.

Before Disaster Strikes

• Ensure that damaged trees are cut and trim branches that could fall on power lines or your commercial building.
• When building a new commercial structure, design it with wind protection at the forefront of the building design.
• If replacing or remodeling your building, consider retrofitting to help mitigate damage from wind and tornadoes. This could involve adding anchors and fasteners, reinforcing gable roof ends, or strapping and bracing roofs.
• Consider constructing a safe room built to withstand higher winds so that employees have a safe place to retreat to during tornado warnings.
• Perform regular inspections and maintenance of your commercial property. Consider hiring a certified building inspector to look for vulnerabilities in your commercial structure and, in particular, your building’s roofing system.
• Install impact-resistant doors and windows.
• Consider storing insurance information and important records on your computer hard drive. Keep a backup of these records in a safety deposit or portable lockbox in another location away from your business.
• Make sure that you have adequate business insurance at all times and ensure that your policy covers tornadoes and other natural disasters specific to your area.

After Disaster Strikes

• Inspect your business and determine the extent of any damage. Evaluate whether or not any equipment or machinery needs to be repaired or replaced.
• Contact your insurance company to file a claim on covered damages as soon as possible.
• If your commercial building or property suffers extensive damage, formulate a plan to get up and running as soon as possible to minimize the financial impacts on you. This could involve seeking another commercial location, applying for disaster assistance, or getting a small business loan.
• If damage is minimal to your commercial property, but power is expected to be out for a significant duration, obtain a portable generator to keep your business operational.
• Obtain an SBA disaster loan or alternative small business loan to cover any physical or economic losses that aren’t covered by your commercial insurance policy. This is a vital resource that can act as a life preserver to run your business until your insurance claims are processed or to cover gaps in coverage.

SBA Disaster Loans

Small businesses and private nonprofit organizations that have financial losses due to a tornado or disaster are eligible to apply for disaster assistance through the U.S. Small Business Administration, or SBA.

A disaster loan can help business owners replace or repair commercial real estate, equipment, machinery, inventory, fixtures, or other commercial improvements. It can also help you meet operating expenses for your business that you would have otherwise been able to meet if the disaster had not occurred.

It’s important to note, however, that an SBA loan is only designed to cover losses that are not covered by your commercial insurance policy. It will also provide for losses that FEMA, or the Federal Emergency Management Agency, doesn’t approve for funding.

You cannot use an SBA disaster loan to expand your business or upgrade it.

Types of SBA Disaster Loans

The SBA issues two primary types of disaster loans to small businesses: an SBA Physical  Disaster Loan and SBA Economic Injury Disaster Loans (EIDL).

An SBA Physical Disaster Loan can help you access funding to replace or repair physical property that has been damaged during a disaster like a tornado, hurricane, or other qualifying weather or disaster-related event. If your business is in a declared disaster area, you could qualify for up to $2 million in Physical Disaster Loan funding.

The EIDL loan program also provides for up to $2 million, but the loan is geared more towards businesses that encounter significant economic losses because of a declared disaster or tornado.

An EIDL loan acts like a working capital loan and can help you meet operational expenses, such as mortgage payments, utility bills, and payroll expenses. The great thing about an EIDL loan is that your commercial property needn’t have sustained property damage from a disaster to qualify for the loan. It just has to be in a declared disaster area and suffered economic losses due to the disaster.

An SBA disaster loan can offer you low-interest rates, ranging from 4 to 8 percent, with up to 30 years to pay back the loan. Your repayment period and terms will depend on the loan amount, your credit history, and how fast the SBA determines you’re able to pay back the loan.

Do SBA Disaster Loans Require Good Credit?

The SBA will usually look at both your business and personal credit record when evaluating your disaster loan application, especially for loan amounts of $200,000 or more.

The SBA itself doesn’t list its minimum credit requirements for an SBA disaster loan. However, there are generally agreed-upon minimum credit qualifications.

First, the SBA will evaluate your FICO SBSS score. The Small Business Scoring Service is the primary business credit score used by small business lenders, including the SBA. A FICO SBSS score can range from 0 to 300.

The higher that your credit score falls within this range, the more favorable your credit will be to an SBA lender. The SBA usually favors small business owners who have an SBSS credit score of 140 to 160 or higher.

The SBA may also examine your personal credit. Typically, it will be easier to get a disaster loan if your personal credit score is 620 or higher. But the SBA looks at many factors when determining whether or not to approve a loan. It is not unheard of for a small business owner to get a small business disaster loan with a personal credit score ranging in the high 500s, provided they meet other criteria.

That said, it’s important to note that the higher your credit score and the more closely aligned it is to the SBA’s minimum credit threshold requirements, the faster and easier it will be to get approval for your disaster loan.

Will the SBA Require Collateral on my Disaster Loan?

The SBA typically requires that disaster loans over $25,000 are secured by collateral when it’s available. If you don’t have collateral available, you can conceivably still get approved for a tornado disaster loan. But the SBA may decide to use any personal real estate or assets you own as collateral if you don’t have enough commercial assets to serve as security against the loan.

Are There Any Other Qualifications Needed for a Tornado Small Business Loan?

In addition to sound credit and possible collateral, the SBA will examine other business credentials when evaluating your tornado disaster loan application.

These factors include the annual revenue of your business and payment history on previous and existing loans. The SBA will also examine your other financial obligations, including rent, mortgage, and utility payments. Any judgments or accounts sent to collections are also likely to be factored in.

The SBA will also require tax returns for the last three years. They will want to make sure you haven’t defaulted on any of your tax obligations or other federal debt, such as a student loan.

The administration will also likely want to examine your debt-to-income ratio to ensure that you can repay your disaster loan while also meeting your other personal and business expenses.

How Do I Apply for a Disaster Loan?

1. Complete your disaster loan application online. You will also need to submit a disaster declaration form.
2. Wait for the SBA to determine if you are eligible for a disaster loan. Once you have verified that you are eligible, get estimates for repairs and losses.
3. Once your loan has been approved, complete any loan closing documents that are sent to you by the SBA.

The application and approval process can take up to three weeks. However, if there are any hiccups in the loan process or the SBA is receiving a high volume of applications, it can take longer.

Once the SBA receives closing documents back from you, you should receive a first disbursement within 3 to 5 business days.

Federal disaster loans are released incrementally; that is, they first send $25,000. Once they are satisfied that the loan is secured by collateral, the SBA will typically send the remaining loan amount to you.

The SBA may also require the following documentation:

• An SBA Form 5 Business Loan Application
• SBA Form 413 or a personal financial statement
• IRS Form 4506-T, or a Request for Transcript of Tax Return Form
• Your business’s most recent Federal tax returns
• Income statements
• Schedule of Liabilities SBA Form 2202
• Disclosure of the type of legal business entity your business is and a tax identification number
• Monthly sales records
• Lease or deed information
• Business insurance information

There may be other documentation required by the SBA to move forward in the disaster loan process. It’s vital to respond to any request made by the SBA within a timely manner so that your application can be processed more quickly.

Are There Alternatives to SBA Disaster Loans if I Don’t Get Approved or Need Faster Funding?

The answer is ‘yes’ to both. The SBA can be fairly rigorous in its loan processing. Thankfully, there are other disaster funding options you can consider if you don’t get approved for an SBA loan or if time is of the essence.

Alternative loans have become more appealing to small business owners because they have more relaxed criteria in terms of the underwriting process.

With an alternative lender like Biz2Credit, many small business owners receive funding within a day or two of applying for their loan.

Alternative loan marketplaces have flexible loan options that include the following types of loans:

Term Loans

A term loan is one of the most common types of small business financing. With a term loan, you get your entire loan amount in a lump sum and pay back the loan each month until the loan is paid in full. Online alternative lenders typically have lower credit threshold requirements than traditional lenders, although you may get more favorable loan terms with better credit. It’s important to compare your options among alternative loan providers because interest rates can vary widely.

Equipment Financing

If you need funding to replace or repair heavy machinery or equipment, you can get an equipment loan through an alternative lender or a traditional bank. Equipment financing usually has better loan terms because the equipment or machinery serves as security for the loan.

Working Capital Loans

Working capital funding can help get you the capital you need for a variety of needs. These include quick cash to help meet operational expenses and payroll, buy or replace inventory or equipment if a tornado or disaster strikes, and cover other business expenses.

The Bottom Line

You have viable options when it comes to getting an Oklahoma tornado small business loan or other disaster recovery funding.

Your first option is to apply for an SBA disaster loan through the SBA.gov website. But if you decide you want a more expedient road to recovery for your small business, you may decide to reach out to a small business loan provider like Biz2Credit. The professionals at Biz2Credit can help you explore both options to help you decide which avenue is right for you and your business.

Consider business owner Yousaf Razzak. He reached out to Biz2Credit during a different disaster – Covid. He had begun his new business just as the pandemic started raging, and as a result, he struggled to get his business off the ground. But Biz2Credit was able to help Yousaf get new real estate funding to find new ways to grow his now thriving business.