Lisa and Robert McIlwain are living a business owner's nightmare. It started when a tornado with 157 mph winds ripped through Fun Zone, their Montgomery (Ala.) skating rink and family entertainment center on Nov. 15, 2006. Although the 31 children and 11 staff members trapped inside the center survived, the 50-employee, $2.5 million business was wiped out. Fun Zone was the only source of income for the couple, who have six children. Their insurance payment went to pay off the mortgage on the damaged property.
After the Small Business Administration declared their part of the state a disaster area, the McIlwains hoped a federal physical disaster assistance loan, designed to help with long-term rebuilding and repairing efforts, would pave the way to recovery.
The SBA, which administers this type of loan and others as part of its comprehensive disaster recovery program, says it tries to act on complete applications in 21 days. But eight months after submitting their application, the McIlwains are still waiting for approval on the loan.
"They look for ways not to help you," Lisa McIlwain says of the SBA's handling of the approval process. In the latest setback, the SBA sent the McIlwains a letter asking them to submit additional information to complete their loan application by July 10. The letter, dated June 29, arrived on July 12, according to the McIlwains. Responding to an inquiry from BusinessWeek, SBA spokeswoman Carol Chastang says a loan officer will contact the McIlwains to see how much time they need to provide the documents.
Canceled Without Notice
Chastang says the McIlwains' application was delayed because they did not send all the information the SBA needs to determine whether they are creditworthy. "All the applicant has to do at this point is again contact the SBA and provide the information that we requested," she says. That includes a tax return for last year and documentation on their settlement with the bank that held the mortgage on their site.
Critics in the past have charged the agency with mishandling disaster assistance loans, which residents as well as business owners can apply for after crippling emergencies (see BusinessWeek.com, 5/11/06, "The SBA's Iffy Future") and (see BusinessWeek.com, 11/12/03, "The SBA's Masters of Disaster"). The SBA inspector general found nearly 12,000 loans to Gulf Coast residents affected by Hurricane Katrina were canceled, many without notice, according to the watchdog's Senate testimony in July.
When the agency's disaster team first visited the site two weeks after the tornado, the couple had high hopes. "They came out immediately, and they were absolutely wonderful," Lisa McIlwain says. The team showed them what they would need to apply for a $1.5 million loan at 4% interest. The McIlwains applied on Dec. 9 but were turned down a month later because they had not yet settled their insurance claim and the SBA did not think they could repay the loan. They were given six months to reapply.
Starting Again, Smaller
The McIlwains owed $3.15 million on the Fun Zone property, which they purchased in 2004. They settled with their insurer in February, taking a 10% reduction on their claim, for just over $3 million to pay down most of that debt. In March they asked that their application be reconsidered but withdrew it the same month on the advice of their SBA loan officer, who indicated it would be turned down again.
In April, hoping to restart their business, the McIlwains bought a smaller amusement center in Dothan, Ala., two hours away. They sold portions of their Montgomery property for $500,000 to put a down payment on the Dothan site, took on $2 million in bank loans at 10% interest for the property and equipment, and moved their family across the state.
"If we hadn't had this opportunity in Dothan, we would've been gone," Lisa McIlwain says. "We still need [the SBA loan] desperately because we're saddled with a 10% loan. That wasn't our intent. With a 4% loan, you have some room, you can go back in and rebuild."
"It's Really Disheartening"
Now the couple pay $19,000 a month in interest on the bank loans. Lisa McIlwain says they had planned to use the 4% SBA loan to offset the mortgage on their Dothan property. With their insurance claim settled, the Montgomery debt paid off, and income coming in from their Dothan site, McIlwain said she expected their loan application to be approved. She reapplied on June 18, and heard nothing from the SBA until the letter came after the July 10 deadline.
If the loan isn't approved, she says, they might turn to outside investors for money to rebuild Fun Zone in Montgomery. But McIlwain is disillusioned about the SBA's ability to help entrepreneurs devastated by natural disasters. "When they set up these disaster teams and nothing comes through, it's really disheartening." SBA spokeswoman Chastang says the agency can't act on the loan without complete information, and the agency is still waiting for the McIlwains to provide the documentation.
See our slide show for glimpses of more entrepreneurs dealing with business nightmares, and hear their advice to fellow entrepreneurs.