The U.S. Small Business Administration is gearing up for a spike in demand for disaster loans from owners of businesses of all sizes whose property was damaged in Hurricane Sandy and its aftermath. It also expects applications to surge for a separate type of loan specifically for small businesses and nonprofits that replaces working capital lost while a company is closed due to a storm, even if its physical property was undamaged. The maximum for both types of loans is $2 million.
Unlike the SBA’s better-known loan guarantee program, in which the agency backs small business loans obtained through commercial lenders, disaster loans are made directly from the government. The 30-year, 4 percent loans are available to business owners in federally declared disaster areas. So far, that includes selected counties in New York, New Jersey, and Connecticut, but with storm damage still being evaluated, the coverage area is likely to expand, says D. Jelani Miller, public affairs specialist with the SBA’s Office of Disaster Assistance in Atlanta.
Despite the expected flood of loan applications in the coming weeks and months, the SBA is hopeful that processing times will take no more than two weeks. “We have been processing applications in less than 14 days—closer to 10—and we don’t anticipate a change in that time frame,” Miller says, noting that the agency has a cadre of reserve loan processors who can be called up to help streamline processing times. “In loan processing, we make sure we’re looking out for the best interest of the taxpayer,” he says. “We’re not going to lend to someone who’s not willing or able to repay the government. But we’re going to make every effort to get as much money as we can out to help businesses and people recover.”
Whether those promises can be kept will be a test of the SBA’s resilience. Seven years ago, the agency was widely criticized for slow processing times and a high decline rate that hurt small businesses trying to come back from both Hurricane Katrina and Hurricane Rita, which hit less than a month apart. The agency has since revamped its electronic and paper loan applications, trimming them to two pages. Instead of asking applicants to attach tax returns, they now can sign an authorization allowing the IRS to provide the relevant returns. Financial information, such as a current profit-and-loss statement for the business and a personal income statement for the owner, are required, as is collateral and a personal loan guarantee.
The SBA also runs a disaster loan program for homeowners, who can apply for up to $200,000 for damage to their primary residences. Another loan program, for up to $40,000 to cover lost personal property, such as furniture, is open to both homeowners and renters.
The agency is doing damage assessments with officials from the Federal Emergency Management Agency and will be setting up disaster loan processing offices in the affected areas soon, Miller says. (They are scouting locations now and typically set up in community centers, fire stations, and city halls.) Individuals who want to apply for loans for their business or residence can visit one of those centers, apply online, or call 800-659-2955. Loan applications can be submitted whether or not insurance claims have been filed or are anticipated.
Business owners who need help preparing financial statements to accompany their SBA disaster business loan applications can get free assistance from local Small Business Development Centers, Women’s Business Centers, or SCORE offices.
After Hurricanes Katrina and Rita, the SBA approved 20,615 business and nonprofit loans totaling more than $2.3 billion. It loaned 122,917 homeowners and renters $7.7 billion. After Hurricane Irene, which hit the Eastern Seaboard in 2011, 1,052 business and nonprofit disaster loans were approved for a total of $98.8 million, and 7,508 homeowner and renter loans were approved, totaling $238.8 million.