Recent Category 5 storms Irma and Maria ripped through the U.S. Virgin Islands delivering a catastrophic one-two punch unlike the Territory has ever experienced, leaving the islands and its residents decimated and in disarray. Many of those affected have lost everything and will be facing a grueling recovery process as they attempt to begin again. Fortunately, various forms of assistance are available to aid in the recovery process and this article will discuss some of the main aspects of the disaster relief loan program available to businesses and individuals through the U.S. Small Business Administration (SBA).
Established in 1953 by President Eisenhower with the signing of the Small Business Act, the SBA is a federal government agency that provides financial support to entrepreneurs, small businesses and individuals. The mission of the SBA is “to maintain and strengthen the nation’s economy by enabling the establishment and viability of small businesses and by assisting in the economic recovery of communities after disasters.”
About SBA Disaster Loans
SBA disaster relief loans are the primary source of federal long-term disaster recovery funds for disaster damage not fully covered by insurance or other compensation. A common misconception about SBA disaster loans is that they are only available to “small” businesses; however, SBA disaster loans provide low-interest, long-term loans to businesses of all sizes, private non-profit organizations, homeowners, and renters to repair or replace uninsured and/or underinsured disaster damaged property. Obtaining an SBA disaster loan can be an affordable way for both individuals and businesses to recover from declared disasters.
The following are a few highlights of SBA disaster loans:
- Eligible homeowners may borrow up to $200,000 for home repair or replacement of their primary residences.
- Eligible homeowners and renters may borrow up to $40,000 to replace disaster-damaged or destroyed personal property.
- Businesses of all sizes can qualify for up to $2 million in low-interest loans to help cover physical damage.
- Businesses suffering economic injury (inability to pay most ordinary and necessary financial obligations) that cannot be met as a result of the disaster can apply for up to $2 million.
- Additional funds may be available to cover loss mitigation costs (improvements that will protect property against future damage).
- Interest rates can be as low as 1.875% for homeowners and renters, 4% for businesses and 2.625% for private nonprofit organizations, with repayment terms up to 30 years.
Depending on the loan type, SBA disaster loan proceeds can be utilized for a variety of costs including:
- Repair or replacement of real property (e.g. buildings, primary residences).
- Repair or replacement of personal property (e.g. vehicles, furniture, equipment, inventory).
- Economic injury to businesses.
- Mortgage refinancing where:
- Mortgage is evidenced by a recorded lien;
- The applicant does not have available credit elsewhere;
- The applicant has suffered substantial uncompensated disaster damage (40% or more of the value of the property); and
- The applicant intends to repair the damage
- Costs to relocate
It is also worth noting that applicants can apply before receiving any insurance proceeds. SBA can provide loans for repairs while applicants wait for their insurance to pay; however, once insurance pays, loan recipients are generally required to repay their SBA disaster loan that covered the repair or replacement costs.
SBA relief loan applicants generally have 60 days after the declared disaster to apply. The SBA may extend this date under certain circumstances. It is recommended, however, that applicants begin the process as early as possible.
The first step is to apply to FEMA at 1-800-621-3362 or www.disastrassistance.gov. In many instances FEMA will then direct applicants to apply for an SBA disaster loan, failure of which to do may result in denial of FEMA assistance later.
The SBA disaster loan application can be summarized in the following three-step process:
- Apply for the Loan
- Apply either 1) online at https://disasterloan.sba.gov/ela; 2) in-person at a disaster center; or 3) by mail.
- Property Verified and Loan Processing Decision Made
- SBA reviews the applicants credit before conducting an onsite inspection of the damages caused by the disaster.
- An SBA verifier inspects the applicant’s disaster damaged property to estimate the total physical losses.
- A loan officer will determine the full eligibility during processing, taking into consideration any insurance or other recoveries. The insurance recovery does not have to be final for SBA to approve the loan. A loan officer works with the applicant to obtain all the information needed to reach a final loan determination. SBA’s goal is to arrive at a decision on the application within two to three weeks. A loan officer will contact the applicant to discuss the loan recommendation and explain the next step in the process. In addition to speaking with the loan officer all loan decisions are communicated in writing.
- Loan Closed and Funds Disbursed
- SBA will prepare and send Loan Closing Documents for the borrower’s signature. Once the executed Loan Closing Documents are received, an initial disbursement may be made within five days.
- A case manager will be assigned to work with the borrower through the disbursement process and schedule subsequent disbursements until the loan is fully disbursed. The loan may be adjusted after closing due to changing circumstances, such as increasing the loan for unexpected repair costs or reducing the loan due to additional insurance proceeds.
Contacts for Help and Additional Resources
Those affected who are in need of assistance should also consider reaching out to their local government. State, territorial and local governments are often better equipped to handle emergency relief situations after a disaster, as they are intended to be the first responders.
Applicants and borrowers with questions, in need of an application or would like to request the status of their loan application should contact the following:
Customer Service: 1-800-659-2955
Customer Service: 1-800-621-FEMA 93362)
J. Nash Davis is an Associate Attorney with BoltNagi, an established and respected law firm assisting a wide range of individuals, businesses and organizations throughout the U.S. Virgin Islands.