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Loans > Business
A primer on SBA disaster loans
JOYCE M. ROSENBERG, AP Business Writer. Associated Press
Copyright Associated Press
NEW YORK (AP) _ Summer storms, floods and fires can strike fear in the hearts of small business owners, who know their hard work and dreams can disappear in a matter of minutes when a disaster happens.
During the past month, businesses in Montana, western Pennsylvania and Arizona have found their property damaged or destroyed due to a variety of natural catastrophes. Because parts of those states have been declared federal disaster areas, many of these businesses are eligible for low-interest loans through the Small Business Administration.
Just as you need to prepare your company in case disaster strikes, it's also a good idea to know something about SBA loans before you need to ask for one. What follows is a brief primer about the loans; more detailed information is available through your local SBA office or the agency's Web site, www.sba.gov.
The SBA offers two types of disaster loans. The first, physical disaster loans, provide money to rebuild and replace real and personal property, and are available to nonfarm businesses of all sizes, as well as homeowners, renters and nonprofit organizations.
The second type of loan, an economic injury disaster loan, is just for small businesses, and only those that cannot get credit elsewhere. These loans provide necessary working capital for a company unable to carry out its normal operation.
By law, the ceiling on business loans is $1.5 million for physical losses or economic injuries, or a combination of both. But the actual amount of each loan is determined by the amount of losses a company has suffered.
However, the SBA does have the authority to approve loans over the $1.5 million limit if a business is a major employer.
Another consideration is insurance _ generally, you can only borrow if your losses are uninsured or otherwise not reimbursed.
Physical loss loans up to $10,000 can be taken out without collateral. There's a $5,000 limit on economic injury loans. Above those amounts, the SBA requires collateral, often a mortgage on the property.
If you need to apply for a loan, your local SBA office can tell you about the procedure.
The information you need to submit is similar to the data you'd need to provide any lender. It includes: an itemized list of losses with your estimate of the repair or replacement cost of each item, federal income tax information, a brief history of the business and business financial statements.
In its Web site, the SBA advises borrowers to be careful in filling out applications _ mistakes or omissions will delay your receiving the money. That's particularly important to keep in mind when disasters happen _ you'll be feeling really stressed out about your losses and the future of the business.
After you've submitted your application, an SBA loss verifier will visit your business to inspect the damage. After that, it's up to the SBA to decide whether to grant the loan, and if so, what its terms should be. There's no prescribed formula _ the SBA determines the interest rate and length of the loan according to the financial circumstances for each borrower.
For example, there are substantial differences for borrowers who are able to obtain credit elsewhere, such as banks or other lenders. A company that is able to get take out a loan elsewhere is limited to a maximum of three years to repay the loan. But companies that have no other resources may take up to 30 years.
Similarly, those with other resources currently pay 8 percent. But companies without other means to borrow pay just 4 percent.
The SBA says more than 90 percent of its disaster loans, which also includes loans to homeowners, are made to borrowers without credit available elsewhere.
There is a big caveat to go with SBA loans: If your company is already failing when disaster strikes, you might not find it so easy to get a loan. As the agency's Web site states, "SBA can only approve loans to applicants with a reasonable ability to repay the loan and other obligations from earnings."
End adv for use anytime
Reproduced with permission of the copyright owner. Further reproduction or distribution is prohibited without permission.
Companies: Small Business Administration (NAICS: 921130, Sic:9300, Duns:85-854-7474 )
Dateline: NEW YORK
Text Word Count 680
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