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sbA LOAN ASSISTANCE
What is the SBA?
The U.S. Small Business Administration (SBA) is a federal agency that assists business owners and individual homeowners and renters by providing low-interest, long-term loans to repair or replace business property, real estate, or personal property owned by a victim that is damaged or destroyed as the result of a disaster in a federally designated disaster area. Loans are made for uninsured losses or otherwise uncompensated disaster losses. The SBA does not duplicate benefits provided by other governmental agencies or private insurance companies (with the potential exception of insurance proceeds that are required to be applied against outstanding mortgages). SBA loans are made on a nondiscriminatory basis and without regard to an applicant’s age. More information about the SBA can be found at its website, www.sba.gov.
What kinds of loans does the SBA provide?
The SBA provides three types of disaster loans:
Home Disaster Loans (HDL): These loans are for homeowners and renters to repair damages to real estate or personal property owned by the victim. The deadline for applying for an HDL is December 24, 2007.
Business Physical Disaster Loan (BPDL): These loans are available to all businesses, regardless of size, and to nonprofit organizations to repair or replace disaster damage or loss of property, including real estate, machinery and equipment, inventory, and supplies. The deadline for applying for a BPDL is December 24, 2007.
Economic Injury Disaster Loan (EIDL): These loans provide working capital to small businesses to assist them through the disaster recovery period. They cover operating expenses (as opposed to physical damage) that the small business could have paid, if the disaster had not occurred. The deadline for applying for an EIDL is July 24, 2008.
What does SBA look for when considering a disaster loan applicant?
There must be reasonable assurance that you can repay your loan out of your personal or business cash flow, and you must have satisfactory credit and character. SBA will not make a loan to you if repayment depends upon the sale of collateral through foreclosure or any other disposition of assets owned by you.
Are there restrictions on how disaster loans can be used?
You must use disaster loans to restore or replace your primary home (including a mobile home used as a primary residence) and your personal or business property as nearly as possible to their condition before the disaster occurred. Your loan will be made for specific and designated purposes. The SBA requires that you obtain receipts and maintain good records of all loan expenditures as you restore your damaged property, and that you keep these receipts and records for three years.
If SBA loan proceeds are misused, the applicant must immediately repay 1.5 times the original amount of the loan.
Does SBA charge any fees for obtaining a disaster loan?
SBA does not charge points, closing, or servicing fees on any disaster loan. You will be responsible for payment of any closing costs owed to third parties, such as recording fees and title insurance premiums. If your loan is made in participation with a financial institution, SBA will charge a guarantee fee to the financial institution, which then may recover the guarantee fee from you.
Is insurance required to get a loan?
The SBA requires borrowers to obtain and maintain insurance if your property is in a special flood hazard area.
Should I wait for my insurance settlement before I apply to the SBA?
No. If you do not know how much of your loss will be covered by insurance or other sources, the SBA will consider making a loan for the full amount of the loss, up to our loan limits, provided that you assign the insurance check to the SBA to reduce the amount of the loan.
How do I apply for an SBA loan?
If you want to apply for a Home Disaster Loan, you must first teleregister with FEMA and obtain a FEMA Control Number. See “FEMA: Process & Procedure.” Once you have a FEMA control number, you usually can obtain a SBA loan application from SBA loan officers at any FEMA Local Assistance Office.
Businesses may apply directly to the SBA for possible disaster assistance.
If you need assistance in completing the SBA loan, you may call the SBA toll free at (800) 659-2955, email the SBA at disastercustomerservice@sba.gov or you may seek the assistance of SBA loan officers at the FEMA Local Assistance and Disaster Recovery Centers or at SBA Disaster Area Offices whose locations can be found at http://www.sba.gov/gopher/Disaster/dao.txt. For the office nearest you, look under "U.S. Government" in your telephone directory, or call (800) U-ASK-SBA (827-5722), Monday through Friday, 9 a.m. to 5 p.m., or (704) 344-6640 (TTY). You may also send a fax to (202) 481-6190 or send an email to answerdesk@sba.gov. There is no charge for such assistance.
How soon will I know if I qualify for a loan?
The SBA's goal is to decide on each application within 21 days from the date the SBA receives a complete application (missing information is the biggest cause of delay). The SBA processes applications in the order received, so you should submit a complete application as soon as you can. To make a loan, the SBA must estimate the cost of repairing the damage, be satisfied that the business or individual can repay the loan, and take reasonable safeguards to help ensure that the loan is repaid.
What happens if my loan application is denied?
If SBA denies your loan application, SBA will notify you in writing and set forth the specific reasons for the denial. You may request reconsideration of your application within six months of the date of the decline notice. After six months, a new loan application is required. If SBA declines your application a second time, you have the right to appeal in writing to the Director, Disaster Assistance Processing and Disbursement Center (“DAPDC”). All appeals must be received by the processing center within 30 days of the decline action. Generally, decisions by the Director, DAPC are final.
Where can I get more information about SBA loans?
For more information call the SBA at (800) 659-2955 or visit the SBA website at http://www.sba.gov/disaster_recov/index.html.
Home Disaster Loans
Is there a deadline for filing for a HDL?
The deadline to file an HDL application is currently December 24, 2007.
Am I eligible to apply for a home disaster loan?
You may be eligible for a SBA loan if you are a homeowner or renter and incurred damage to your real estate or tangible personal property during a disaster, you have satisfactory credit and character, and the SBA determines that you will be able to repay the loan. Generally, loans over $10,000 must be secured by some collateral. SBA will not decline a loan if you lack a particular amount of collateral as long as it is reasonably sure that you can repay your loan. If you refuse to pledge available collateral when requested, however, SBA may decline or cancel your loan.
What are the amounts of HDLs?
Personal property loans are in amounts up to $40,000, while real property loans are in amounts up to $200,000. The amount of a specific loan depends on individual circumstances, including the applicant’s ability to repay the loan and the applicant’s past history with the SBA. (For example, if an applicant did not comply with the terms of a prior SBA loan, he or she likely is not eligible for another SBA loan).
What interest rate will I pay on my HDL? What are the repayment terms?
If you can obtain credit elsewhere, your interest rate will be 5.875%. If you cannot obtain credit elsewhere, your interest rate will be 2.937%. “Credit elsewhere” means that, based on your cash flow and disposable assets, SBA believes you could obtain financing from non-federal sources on reasonable terms.
The term of the loan will be determined by the SBA based on your needs and your ability to repay the loan. The maximum term is 30 years.
The SBA does not have a minimum monthly payment. Payments vary depending upon income and expenses, size of family, and other circumstances that may affect your repayment ability. Generally, the first payment is not due until five months after the date of the loan.
Are there any limitations on the use of a HDL?
Yes. The HDL is intended to help you return your property to the same condition it was in before the disaster. Your loan will be made for specific and designated purposes, and you will be required to maintain records of all HDL expenditures for three years.
Your HDL may be increased by up to 20% to protect the damaged property against possible future disasters of the same type.
I already have a mortgage on my home. I can't afford a disaster loan plus my current mortgage payment. Can the SBA refinance my mortgage?
In certain cases, yes. The SBA can refinance all or part of prior mortgages, evidenced by a recorded lien, provided you:
- Do not have credit available elsewhere;
- Have suffered substantial uncompensated disaster damage (40% or more of the value of the property); and
- Intend to repair the damage.
An SBA disaster loan officer can provide more detailed information on your specific situation.
If my home is completely destroyed, can the SBA lend me money to relocate my home somewhere else?
If you are unable to obtain a building permit to rebuild or replace your home at its original site, the cost of relocating your home might be included in the loan amount. If, however, you decide to relocate your home without being required to, an SBA loan can be obtained only for the exact amount of the damage. SBA cannot make loans involving some relocations. An SBA disaster loan officer can provide more detailed information on your specific situation.
What information should I include with my HDL application?
The necessary information is specified in the loan application. In all cases, it includes an itemized list of losses with an estimate of the repair or replacement cost of each item. It also includes permission for the IRS to give the SBA information from your last two federal income tax returns. If you have pictures of the damaged property, you can include them as well.
Business Physical Disaster Loans
What is the deadline for applying for a BPDL?
The deadline to file an application for a BPDL is currently December 24, 2007.
Is my business eligible for a BPDL?
Almost all businesses and charitable or other nonprofit entities that are located in a declared disaster area and have incurred damage to real or tangible personal property as a result of the disaster may apply for a loan to help repair or replace the damaged property. Your business may be a sole proprietorship, partnership, corporation, limited liability company, or other legal entity recognized under state law. The size of your business (average annual receipts or number of employees) will not be taken into consideration in determining your eligibility for a BPDL.
BPDLs in excess of $10,000 require that you pledge collateral to the extent it is available. Normally, the collateral would consist of a first or second mortgage on the damaged business property. In addition, personal guarantees by the principals of a business are required for all BPDLs. The SBA will not decline a loan for lack of collateral, but you must pledge available collateral.
What are the amounts of BPDLs?
BPDLs are generally capped at $1.5 million. Further, while you may receive both a BPDL and an EIDL, the combined assistance is capped at $1.5 million. The SBA can waive this cap in certain circumstances.
What interest rate will I pay on my BPDL? What are the repayment terms?
If your business, together with its affiliates and principal owners, has credit elsewhere, your interest rate will be 8%. If your business is a nonprofit organization, your interest rate will be 5.25%. If you do not have credit elsewhere (regardless of whether your business is a nonprofit), your interest rate will not exceed 4%.
The term of the loan will be determined by the SBA based on your needs and your ability to repay the loan, but cannot exceed three years if you can receive credit elsewhere. Otherwise, the maximum term is 30 years.
Generally, you must pay equal monthly installments, of principal and interest, beginning five months from the date of the loan as shown on the loan note. SBA will consider other payment terms if you have seasonal or fluctuating income, and SBA may allow installment payments of varying amounts over the first two years of the loan.
Are there any limitations on the use of a BPDL?
Yes. Physical disaster loans are intended to be used to repair or replace real and personal property damaged in the fires. Proceeds from the loan can be used to cover items such as real property, machinery, equipment, fixtures, inventory, and leasehold improvements. Motor homes, boats, aircraft, and other vehicles typically used for recreation will not be covered by the loan unless you can demonstrate that the vehicle was used in your business at the time of the fires. Normally, SBA funds cannot be used to expand or upgrade a business. If city or county building codes require such upgrading, however, then the BPDL can be used for that purpose. A BPDL will be made for specific and designated purposes, and you will be required to keep main records of all BPDL expenditures for three years.
BPDLs to repair or replace real property or leasehold improvements may be increased by as much as 20% to protect the damaged property against possible future disasters of the same type.
I already have a mortgage on my business and I can't afford a disaster loan plus my current mortgage payment. Can the SBA refinance my mortgage?
In certain cases, yes. The SBA can refinance all or part of prior mortgages, evidenced by a recorded lien, if you: 1) do not have credit available elsewhere; 2) have suffered substantial uncompensated disaster damage (40% or more of the value of the property); and 3) intend to repair the damage.
If my business is completely destroyed, will SBA lend me money for relocation?
Yes. In certain circumstances, limited relocation costs can be included in the loan amount. Whenever relocation is involved, you should contact the SBA disaster office before making any commitments.
What information should I include with my BPDL application?
The BPDL application form asks for the same information about your business and its principal owners and managers that is generally required for a bank loan. The required information is specified in the loan application and includes: 1) an itemized list of losses with your estimate of the repair or replacement cost of each item; 2) a copy of certain federal income tax information; 3) a brief history of the business; and 4) personal and business financial statements.
Am I required to submit a personal financial statement with my BPDL application?
Yes. The SBA must review your financial statement and the financial statements for each partner, officer, director, and stockholder with 20% or more ownership. The SBA requires the principals of the business to personally guarantee repayment of the loan and, in some instances, to secure the loan by pledging additional collateral.
Economic Injury Disaster Loans for Small Businesses
What is the deadline for applying for an EIDL?
The deadline to file an application for an EIDL is currently July 24, 2008.
Is my business eligible for an EIDL?
Your business may be eligible for an EIDL if the following conditions are met: 1) your business is a “small business"; 2) your business has suffered "substantial economic injury" as a result of the fires, regardless of physical damage; 3) your business is located in a "declared disaster area" (or in a jurisdiction located next to the disaster area); and 4) the business and its principals do not have credit available elsewhere.
A "small business" is one that is independently owned and operated and that is not dominant in its field of operation. What constitutes a small business varies from industry to industry, but is almost always stated in terms of either number of employees or average annual receipts. For industry size guidelines, see http://www.sba.gov/size/indextableofsize.html.
In addition, certain categories of businesses are not eligible for an EIDL. These include nonprofits, religious organizations, businesses which derive one-third of their annual income from legal gambling, and agricultural enterprises (other than small nurseries and small agricultural cooperatives). Individuals also are not eligible for EIDLs.
"Substantial economic injury" is the inability of a business to meet its obligations as they come due or to pay its ordinary and necessary operating expenses due to the wildfires. Loss of anticipated profits or a drop in sales is not sufficient to establish substantial economic injury. Indicators of economic injury might be a larger than normal volume of receivables, a lower sales volume, slow inventory turnover, and the development of delinquencies in trade payables, current accruals, and debt payments.
Your business must be located in the declared disaster areas or certain counties or other political subdivisions that are contiguous to the declared disaster area.
If the amount of the loan is $5,000 or less, you will not be required to pledge collateral. If the amount of the loan is over $5,000, you will be required to pledge collateral to the extent that it is available. Normally, the collateral would consist of a first or second mortgage on the business property. In addition, personal guarantees by the principals of a business are required. The SBA will not decline a loan for lack of collateral, but you must pledge available collateral.
If I can borrow from a bank, am I still eligible for an EIDL?
No. Private credit sources must be used as much as possible to overcome the economic injury. The SBA can provide EIDL assistance only to the extent the business (and its principals) cannot recover by using its own resources and normal lending channels.
Must I sell assets that are not used in my regular business operations before I am eligible for an EIDL?
The SBA will review the availability of such assets to determine if part or all of the economic injury might be remedied by using such assets. The business and its principal owners must use their own resources to overcome the economic injury to the greatest extent possible without causing undue hardship.
What are the amounts of EIDLs?
EIDLs are generally capped at $1.5 million. Further, while you may receive both a BPDL and an EIDL, the combined assistance is capped at $1.5 million.
You may request an EIDL for the amount of economic injury and operating needs, but not in excess of what your business could have paid had the disaster not occurred. In determining the eligible amount, the SBA will look at: 1) the total of your debt obligations; 2) operating expenses that mature during the period affected by the disaster, plus the amount you need to maintain a reasonable working capital position during that period; and 3) expenses you could have met and a working capital position you could have maintained had the disaster not occurred.
The amount of your economic injury does not automatically represent the dollar amount of your loan eligibility; the SBA will evaluate the information you provide and determine the reasonableness of your loan request.
What interest rate will apply to my EIDL? What are the repayment terms?
The maximum annual interest rate for EIDLs is 4%. The maximum term of an EIDL is 30 years. The actual term will be determined by the SBA based on your business needs and your ability to repay the loan.
Are there any limitations on the use of an EIDL?
Yes. An EIDL is intended to help you maintain a secure financial condition until your business is back to normal. It provides operating funds until your business recovers. For instance, you may use an EIDL to make payments on short-term notes, accounts payable, and installment payments on long-term notes, to the extent that you could have made these payments had the disaster not occurred. Your loan will be made for specific and designated purposes, and you will be required to main records of all BPDL expenditures for three years.
You may not use EIDL funds to: 1) pay cash dividends or bonuses, or for disbursements to owners, partners, officers, or shareholders not directly related to the performance of services for the business; 2) refinance long-term debts or provide working capital that was needed by the business prior to the disaster; or 3) expand your business facilities or purchase a new line of inventory with an EIDL.
What documents should I use to show my losses when applying for an EIDL?
In order for the SBA to compare your financial condition and operating results prior to the wildfires with those during and after the wildfires, you must furnish balance sheets and operating statements for both pre-disaster and post-disaster periods of time. The specific requirements are contained in the EIDL application form.
Am I required to submit a personal financial statement with my loan application?
Yes. The SBA must review your financial statement and the financial statements of each partner, officer, director, and stockholder with 20% or more ownership in your business. The SBA requires the principals of the business to personally guarantee repayment of the loan and, in some instances, to secure the loan by pledging additional collateral.