DISASTER LOAN PROGRAMS

In the wake of hurricanes, floods, earthquakes, wildfires, tornados and other physical disasters, the U. S. Small Business Administration (SBA) plays a major role. SBA's disaster loans are the primary form of Federal assistance for nonfarm, private sector disaster losses. For this reason, the disaster loan program is the only form of SBA assistance not limited tosmall businesses. Disaster loans from SBA help homeowners, renters, businesses of all sizes and nonprofit organizations fund rebuilding. SBA's disaster loans are a critical source of economic stimulation in disaster ravaged communities, helping to spur employment and stabilize tax bases.

By providing disaster assistance in the form of loans which are repaid to the Treasury, the SBA disaster loan program helps reduce Federal disaster costs compared to other forms of assistance, such as grants. When disaster victims need to borrow to repair uninsured damages, the low interest ratesand long terms available from SBA make recovery affordable. Because SBA tailors the repayment of each disaster loan to each borrower's financial capability, unnecessary interest subsidies paid by the taxpayers areavoided. Moreover, providing disaster assistance in the form of loans rather than grants avoids creating an incentive for property owners tounderinsure against risk. Disaster loans require borrowers to maintain appropriate hazard and flood insurance coverage, thereby reducing the need for future disaster assistance.

The need for SBA disaster loans is as unpredictable as the weather. DuringFY 1991, SBA approved 12,451 disaster loans for $356.3 million. Thiscompares to 51,970 disaster loans for $1.32 billion in FY 1990, due largely to the destruction of Hurricane Hugo in the Caribbean and the Carolinas and the Loma Prieta earthquake in the San Francisco Bay area of California.Since the inception of the program in 1953, SBA has approved over 1,050,000 disaster loans for more than $15.3 billion.

The SBA is authorized by the Small Business Act to make two types of disaster loans:

Physical disaster loans are a primary source of funding for permanent rebuilding and replacement of uninsured disaster damages to privately-owned real and/or personal property. SBA's physical disaster loans are available to homeowners, renters, nonfarm businesses of all sizes and nonprofit organizations.

Economic injury disaster loans help provide necessary working capital until resumption of normal operations after a physical disaster event. The law restricts economic injury disaster loans to small businessesonly.

The disaster program is SBA's largest direct loan program, and the only SBA program assisting entities other than small businesses. By law, neither governmental units nor agricultural enterprises are eligible; agricultural producers may seek disaster assistance from specialized programs at the U.S. Department of Agriculture.

Disaster victims must repay SBA disaster loans. SBA can only approve loansto applicants with a reasonable ability to repay the loan and other obligations from earnings. The terms of each loan are established inaccordance with each borrower's ability to repay. The law gives SBA several powerful tools to make disaster loans affordable: low interest rates (aslow as 4%), long terms (up to 30 years), and refinancing of prior debts (insome cases). As required by law, the interest rate for each loan is basedon SBA's determination of whether each applicant does or does not have credit available elsewhere (the ability to borrow or use their own resources to overcome the disaster). Generally, over 90% of SBA's disaster loans are to borrowers without credit available elsewhere and have an interest rate of 4%.

SBA delivers disaster loans through four specialized Disaster Area Offices located in Niagara Falls, NY; Atlanta, GA; Ft. Worth, TX; and Sacramento,CA.

TYPES OF DISASTER LOANS:

• Home Disaster Loans: Loans to homeowners or renters to repair or replace disaster related damage to homes or personal property that is owned by the applicant. Renters are eligible for personal property loans.

• Business Physical Disaster Loans: Loans to businesses to repair or replace disaster related damaged property owned by the business, including inventory and supplies.

• Economic Injury Disaster Loans: Working capital loans (referred to as ElDL) to small businesses and to small agricultural cooperatives to assist them through the disaster recovery period. These loans are available only if the business or its owners cannot obtain this type of assistance from non-government sources. This determination is made by SBA.

CREDIT REQUIREMENTS:

• These are loans and you must show that you have the ability to repay them. Physical loss loans in excess of $10,000 and ElDL loans in excess of $5,000 must be secured with collateral. Generally, for individuals, that will include a lien on the applicant's real estate. However, loans will not be declined for lack of a fixed amount of collateral.

• There are different interest rates and terms for these loans. They depend on whether or not you could recover from yourdisaster damage with your own funds or have the ability to borrow through non-government sources. It is called "Credit Available Elsewhere" and "Credit Not Available Elsewhere." This determination is made by SBA.

LOAN AMOUNT:

• For homeowners and renters, up to $100,000 for repair or replacement of real estate; up to $20,000 for repair or replacement of personal property. The loan amount is limited to the amount of uninsured, SBA verified losses, but may be increased by up to 20 percent for mitigating devices for damaged real property.

• For business physical disaster loans, up to 100 percent of the uninsured, SBA verified loss not to exceed $500,000. Within this limit, the loan may be increased by up to 20 percent for mitigating devices for damaged real property.

• Any insurance proceeds that are required to be applied against outstanding mortgages may be included in disaster loan eligibility. Any insurance proceeds that are voluntarily applied against outstanding mortgages by the owner may not be included in disaster loan eligibility.

• Refinancing of existing mortgages on homes and business property is possible in some circumstances. Consult an SBA representative for further information.

• For Economic Injury, up to $500,000.

• The total loan amount to any one business entity (including affiliates for combined Economic Injury and Business Disaster Loans) cannot exceed $500,000.

LOAN TERM:

• For businesses with "Credit Available Elsewhere," the maximum term is up to three (3) years.

• For all other borrowers, loan terms not to exceed 30 years are available. Loan terms are individually determined based upon what is reasonable in consideration of your repayment capability.

LOAN LIMITATIONS:

• No loans for damages to secondary homes.

• No loans for damage to personal pleasure boats, planes, recreational vehicles, antiques, collections, etc.

• Limitation on loan amounts for landscaping, family swimming pools, etc.

FLOOD INSURANCE REQUIREMENTS:

• Applicants who have SBA loans that require them to maintain flood insurance are not eligible for loans if they have not maintained their insurance.

• If your property is located in a special flood hazard area, you must purchase and maintain flood insurance for the insurable value of your property, regardless of the amount of your loan.