Disaster Loans

Homeowners and renters are eligible for long-term, low-interest loans to rebuild or repair a damaged property to pre-disaster condition. Before making a loan, the SBA must establish the cost of repairing or rebuilding the structure, applicant’s repayment ability and whether the applicant can secure credit in the commercial market. Applicants who do not qualify for disaster assistance loans are usually referred to the Federal Emergency Management Agency (FEMA) for grants.

Businesses are also eligible for long-term, low-interest loans to recover from declared disasters. Similar to the homeowner’s loan program mentioned above, small business owners pledge any available assets and acquire a similar pledge from a spouse or partner in the case of shared assets. If defaulting on the debt, the spouse or partner must surrender their value in the assets. The total value of an applicant’s assets is not considered by the SBA; therefore, a company may be approved for a loan regardless of whether that entity has little or substantial net worth.

Once an SBA loan is approved, the SBA mails closing documents to the applicant for signature. Disbursements include an initial unsecured amount of $14,000, and subsequent disbursements depending upon construction progress and continued insurance coverage. After final disbursement, the loan is transferred to one of the SBA’s servicing offices for management, or to its collections office in the case of default.

Disaster Relief Loans are often approved within 21 days. However, after Hurricane Katrina the SBA processed applications, on average, in about 74 days.

If a business with a Disaster Relief Loan defaults on the loan, and the business is closed, the SBA will pursue the business owner to liquidate all personal assets, to satisfy an outstanding balance. The IRS will withhold any tax refund expected by the former business owner and apply the amount toward the loan balance.