SBA Prepares for an Influx in Disaster Commercial Loans

Bulldozer and destroyed offices
The U.S. Small Business Administration (SBA) is preparing for an increase in business disaster loans from owners affected by Hurricane Sandy and its aftermath.

The SBA is gearing up for a spike in its lesser known commercial loan program: disaster loans. Unlike small business loans, disaster loans are made directly by the government. The loans offer terms up to 30 years, and interest rates of 4 percent. Currently, the loans are available to affected business owners in New York, New Jersey, and Connecticut. After the storm damage is further assessed, additional states might be added to the federally declared disaster areas.

According to a recent press release, businesses and private non-profit organizations may borrow up to $2 million to repair or place any business assets, including real estate, equipment, or inventory.

“The U.S. Small Business Administration is strongly committed to providing the people of [the affected areas] with the most effective and customer-focused response possible to assist homeowners, renters, and businesses with federal disaster loans,” the agency said in a press release. “Getting businesses and communities up and running after a disaster is our highest priority at SBA.”

Previously established SBA rules prohibit new additions or building expansions, unless required by local building codes. The main priority is to get a business back to its original state.

“In loan processing, we make sure we’re looking out for the best interest of the taxpayer,” D. Jelani Miller, public affairs specialist with the SBA’s Office of Disaster Assistance in Atlanta, said to Businessweek. “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.”

Regardless of the expected influx of new loan applications due to Hurricane Sandy, the SBA is preparing to have all disaster commercial loans processed in less than two weeks. Miller said the agency does not anticipate a change in their time frame due to a group of commercial loan processors who can assist the current staff if needed.

The true test of the SBA’s strength will be shown in time. During Hurricane Katrina and Hurricane Rita, the SBA was criticized for a high decline rate, and slow processing time. Since then, the SBA changed its loan processing procedures, reducing the commercial loan applications to two pages, and allowing the IRS to provide their tax forms. In past years, tax returns and lengthy questions burdened business owners who had just lost a large portion of their capital, documents included. Some financial information is still required in order to process a loan, such as personal income statements and a current profit-and-loss statement.

Miller said the SBA agency is currently doing damage assessments with the Federal Emergency Management Agency (FEMA) and will set up disaster commercial loan processing offices shortly.