Considering SBA Disaster Loans for your small business or startup?

SBA Disaster Loans might be a useful tool to help you weather this economic downturn — or make things worse for your business.

Eric Engelmann
Mar 22 · 5 min read

tl;dr: If an SBA loan meets your needs, you should probably apply —you don’t have to accept what they offer. But you should go into this eyes open, knowing the pros and cons, which is what this article is about.

These are extraordinarily challenging times for startup founders and small business owners. Cash flow is likely slowing down as the economy slows and the effects of COVID-19 drag on.

At first blush, applying for an SBA disaster loan, immediately, might seem like a no-brainer. A loan gives you optionality that you can use if you need it. And if you wait too long to get started, it might be too late. In my own businesses, I’ve used debt and loans (SBA and traditional) to grow and to weather stressful times, it can be a very useful tool.

Some advantages of SBA loans include:

  • because the government backs the majority of the loan, banks are willing to loan you money they otherwise wouldn’t
  • the interest rates are sometimes good, and often locked in for a long time
  • you might not have any other options for short-term working capital

But it’s not a panacea. In fact, it can be downright terrifying.

Let’s go through a few things you should consider before accepting an SBA loan.

1. There might be better options coming soon.

2. Collateral & personal guarantees are no joke.

3. Debt might not be the right answer.

(NewBoCo is partnering with Mike Colwell of the Greater Des Moines Partnership on virtual financial modelling seminar coming up this Tuesday, March 24, 2020, you can sign up here)

4. It might take too long to clear.

The Iowa SBA is holding a webinar on some of the details of applying for these loans on Weds March 25 at 3:30. More info here:

5. Other, faster options.

6. You’re in hock to a bank, and no bank is your friend.

An SBA loan might be the only and best — if risky — way to get working capital to help weather these turbulent times. But you need to go into this with a level head and clear thinking to decide if it is right for you. I hope these thoughts were useful in your decision-making process.


A tip o’ the hat to Jo Eckert and Scott Swenson for additions and clarifications.

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