DISASTER BUSINESS LOANS

The U.S. Small Business Administration is authorized to make loans up to $500,000 to a business of any size to repair or replace the business' property to its pre-disaster condition. Repair or replacement of real property, machinery, equipment, fixtures,inventory, and leasehold improvements may be included in a loan.

Any business located in a declared disaster area which has suffered damage as a result of a physical disaster is eligible to apply for a physical disaster loan to help repair or replace damaged property to its pre-disaster condition. In addition, disaster loans to repalr or restore real property or leasehold improvements may be increased by as much as 20 percent to protect the damaged real property from possible future disasters of the same type.

SBA loans will cover uninsured physical damage. If you are required to apply insurance proceeds to an outstanding mortgage on the damaged property, the amount applied can be included in your disaster loan. The interest rate which the Agency charges on its disaster loans is determined by your ability to obtain "credit elsewhere;" that is, from non-Federal sources.

UNABLE TO OBTAIN CREDIT ELSEWHERE
If SBA determines that the business (or nonprofit organization) is unable to obtain credit elsewhere (considering the cash flow and assets of the business, its principals, and affiliates), the interest rate which will be charged on a loan will not exceed 4 percent per year.

The maximum maturity for such business disaster loans is 30 years. However, the actual maturity of a loan is set depending upon the ability of the business to repay the loan.

ABLE TO OBTAIN ELSEWHERE
If SBA determines that the business does have the ability to obtain credit elsewhere, the Agency can make a loan at an interest rate which will not exceed that being charged in the private market at the time of the physical disaster or 8 percent, whichever is less. The maturity of this loan may not exceed 3 years.

Note: Charitable, religious, nonprofit and similar organizations with the ability to obtain credit elsewhere are eligible for physical disaster loans for up to 30 years at an interest rate based upon a different statutory formula. The nearest SBA disaster office can supply you with the interest rate.

I've heard that SBA loan applications are complicated and hard to complete. Is this true?
No. The application form asks you for the same information about the business and its substantial owners and managers as that generally required for a bank loan. If you need help, SBA personnel are available to explain the forms and give you assistance at no charge. You may use the services of an accountant or attorney if you wish, but be sure they are reliable and that their fees are reasonable. You must report the use of an accountant and/or an attorney and their fees on your loan application.

If I receive a disaster loan, may I spend the money any way I want?
No. The disaster loan is intended to help you return your property to the condition it was in before the disaster, and under certain circumstances, for mitigating devices. Your loan will be made for specific and designated purposes. Remember that the penalty for misusing disaster funds is immediate repayment of 1 1/2 times the original amount of the loan. SBA requires that you obtain receipts and maintain good records of all loan expenditures as you restore your damaged property, and keep these receipts and records for 3 years.

I already have a mortgage on my business. Can SBA refinance my mortgage?
In certain cases, yes. To be eligible for SBA refinancing, (1) the property has to have been destroyed or substantially damaged, (2) SBA must determine that the business is unable to obtain credit elsewhere, (3) the amount of refinancing cannot exceed the actual amount of damage, and (4) the amount shall be reduced to the extent such mortgage or lien is satisfied by insurance or otherwise. An SBA loan officer can provide you with more detailed information on your specific situation.

Is collateral required for these loans?
Loans of $10,000 or less do not require collateral. Loans in excess of $10,000 require the pledging of 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. No loan will be declined for lack of collateral, but you must pledge that collateral which is available.

How soon will I know if I will get a loan?
That depends on how soon the business files a complete SBA loan application. As a loan program, we have to know the cost of repairing the damage, be satisfied that the business can repay the loan out of the operations of the business, and take reasonable safeguards to help make sure that the loan is repaid. The SBA loan application asks for the information we need. The faster you can return it to us, with all the needed information, the faster we can work on it. We try to get all applications processed through to a decision not later than 60 days after they are filed. The ones that are filed early can be completed in a much shorter time. Applications are processed in the order received, so it is in your interest to file early. Be sure your application is complete because missing information is the biggest cause of delay.

How soon can I expect the money?
Because loans over $10,000 have to be secured, after a loan is approved there are other steps that you have to take. Usually, the security consists of a first or second mortgage on the damaged business property and personal guarantees. After we approve the loan we will tell you what has to be done (these are the loan closing documents, just like in any other secured loan). When the loan closing documents are returned to us, we can order the checks. Because these are subsidized loans, we will not give you all the money at once; we will give it to you in installments, as you use it to repair or replace the damage.

Will SBA check the losses I claim?
Yes. Once you have returned your loan application, an SBA loss verifier will visit you to determine the extent of the damage and the reasonableness of the loan request.

What information do I need to help me complete the loan application form?
Necessary 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) copies of your last 3 years' Federal income tax retums, (3) a copy of your deed, mortgage, lease or rental agreement, (4) a brief history of the business, and (5) personal and business financial statements. A contractor's estimate for repairing structural damage may be desirable, but you may make your own cost estimate, if you wish. Remember to sign and date each part of the application; it cannot be processed if you omit any form that requires your signature.

How may I use the SBA disaster loan?
The loan is intended to help you restore your property as nearly as possible to its pre-disaster condition, and under certain circumstances, for mitigating devices. Normally, SBA funds cannot be used to expand or upgrade a business. But, in the event that city or county building codes require such upgrading, SBA loans may be used for that purpose.

I had to remove debris from my property after the disaster. Can this expense be included in my loan application?
Yes, but your own labor and that of family members cannot be included. Amounts paid to others and any equipment rental can be listed as part of repairs to real estate. Remember that the maximum loan limit on physical damage is $500,000, and debris removal is included in that limit.

I am a farmer. Am I eligible to apply for SBA assistance for damage to my farm?
No, not for damage to farms. However, you may apply to SBA only for a loan to cover the damage to your home and its contents. It may be in your interest to seek assistance first from the Farmers Home Administration.

I would like to get a contractor's estimate for the cost of repairing damage to my business, but I'm having difficulty in finding a contractor. Should I hold up my application until I get the estimate?
No, because you might miss the deadline for filing your application by waiting for a contractor's estimate. If you have one, include it. SBA wiii verify the damage estimate in your application. The sooner you file a completed application, the faster it can be processed by SBA.

Should I wait for my insurance settlement before I file my loan application?
No. The application may be retumed to SBA now, and final insurance information added when a settlement is made. A loan may be approved for the total replacement cost, but the insurance proceeds must be assigned to SBA. Don't miss the filing deadline by waiting for an insurance settlement.

Must I use my own money or try to borrow from a bank before I come to SBA?
No. The resources of the business and its principals will be considered in determining the ability of the business to obtain credit elsewhere.

Besides the damage to my property, my business suffered economically as a result of the disaster. Do SBA loans cover these economic losses also?
Yes they do, but only if you and your business do not have credit available elsewhere and your business qualifies as small as defined by SBA. The same application form is used together with a supplement for the economic injury. However, the maximum the business and any affiliated businesses may borrow for any one disaster for both physical and economic injury combined is limited to $500,000.

If my business is completely destroyed, can SBA lend me money to relocate my business?
Yes. In certain circumstances, limited relocation costs can be included in the loan amount. Whenever relocation is involved, you should contact the $8A disaster office before making any commitments.

Is flood insurance needed to get a loan?
If the business is in a special flood hazard area, it must have flood insurance before we can disburse a loan.