You don't want to think about what might happen when disaster strikes. After all, your business is doing well.
But when a natural disaster like Hurricane Harvey strikes, there may be a fallout in your business that's outside of your control.
Here, we're breaking down SBA disaster loans, how they work, and how they can help your business after a disaster.
SBA Disaster Loans
First, let's cover the basics. What are disaster loans?
Provided by the U.S. Small Business Administration, disaster loans are special funds designated for the relief of businesses and homeowners in designated disaster areas following a flood, storm, fire, drought, or similar disasters.
Basically, it's funding earmarked specifically for businesses that do not have the means to remain operational as a result of a natural disaster.
Since the needs of a business following a natural disaster are diverse, the uses of a disaster loan are equally diverse.
These loans are designated to promote business continuity. As such, they can be used for any of the following:
Economic injury is for businesses that did not sustain physical damage but, because of the natural disaster, their business continuity is disrupted.
There's also a specific subset of economic injury recovery for military reservists, which is for businesses with employees who were called to active duty because of a disaster and whose operations are disrupted by their absence.
To be clear: disaster loans are for the express purpose of recovery after a disaster. Returning to the status quo, if you will. The loans cannot be used to expand your facilities or operations, though you may be eligible to receive additional funds for improvements that reduce your future risk.
With this in mind, there are a variety of SBA disaster loans depending on what you need to accomplish. The types of disaster loans include:
These are all long-term, low-interest loans. Most of them are available in amounts up to $2 million and are designated by specific uses.
With that in mind, who can qualify for one of these loans?
As a rule, any business that has incurred physical or economic damage could potentially qualify for a loan.
Even if your business has an insurance policy that you're waiting to find out about, the SBA still recommends that you apply for a loan. But keep in mind that if your insurance disbursement and the loan both come through, you'll have to apply the disbursement to the loan you receive.
In addition, if you have available credit elsewhere, you are still eligible to apply for a loan. However, because of this external credit, the SBA may grant you a loan at a higher interest rate.
So, if you know that you need help from a disaster loan, and you know that your business stands a good chance of qualifying, how do you apply for a disaster loan?
The first step is to go to the US Small Business Administration website. Once you're there, you first need to find out if you're in a declared disaster area (even if your business did suffer from a disaster, if you're not in a declared disaster zone, you won't qualify).
To do this, simply search declared disaster areas.
If your business is in a declared disaster area, you can return to the homepage and click on "Apply for Assistance."
While you can apply by mail, the fastest way to receive a decision is by applying online.
You'll need to have access to the following information:
Once you have this information, you can start the three-part process:
Once the SBA receives your signed loan closing documents, the initial disbursement of $25,000 for physical or economic damage will be made. You'll also be assigned a caseworker to make sure you meet the loan conditions and to schedule future disbursements.
Now, with all of that in mind, let's talk about what kinds of interest and repayment rates you can get on a disaster loan.
In accordance with SBA rules, participating lenders set their interest rates based on the prime rate plus a markup.
So, if your loan is more than $50,000 and the term is shorter than seven years, your rate will be based on the prime rate with a maximum markup of 2.25%. As of December last year, the maximum rate for a loan like this was 6.75%.
If your loan is more than $50,000 but the term is seven years or longer, then the maximum markup is 2.75%. Last year, the maximum rates for loans like this were around 7.25%.
Now, because you're getting an SBA loan and not a loan through a private lender, you'll get a longer repayment period. The exact term depends on what the loan will be used for.
For daily operations loans, you'll have seven years. For new equipment purchases, you'll have ten years, and for real estate, you can have up to 25 years.
In general, the longer the repayment term, the lower the interest rate and the lower your regular payments will be.
If you have defaulted on an SBA disaster loan you will need assertive and experienced legal counsel when dealing with the federal government.
The good news is that you don't have to go through this frightening time alone. An SBA loan lawyer can help you manage these treacherous waters.
Take a look at our available services, or get in touch today to see what we can do for you.
Millions of Dollars in SBA Debts Resolved via Offer in Compromise and Negotiated Repayment Agreements without our Clients filing for Bankruptcy or Facing Home Foreclosure
Millions of Dollars in Treasury Debts Defended Against via AWG Hearings, Treasury Offset Program Resolution, Cross-servicing Disputes, Private Collection Agency Representation, Compromise Offers and Negotiated Repayment Agreements
Our Attorneys are Authorized by the Agency Practice Act to Represent Federal Debtors Nationwide before the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service.
Client personally guaranteed an SBA 7(a) loan for $100,000 from the lender. The SBA loan went into early default in 2006 less than 12 months from disbursement. The SBA paid the 7(a) guaranty monies to the lender and subsequently acquired the deficiency balance of about $96,000, including the right to collect against the guarantor. However, the SBA sent the Official 60-Day Due Process Notice to the Client's defunct business address instead of his personal residence, which he never received. As a result, the debt was transferred to Treasury's Bureau of Fiscal Service where substantial collection fees were assessed, including accrued interest per the promissory note. Treasury eventually referred the debt to a Private Collection Agency (PCA) - Pioneer Credit Recovery, Inc. Pioneer sent a demand letter claiming a debt balance of almost $310,000 - a shocking 223% increase from the original loan amount assigned to the SBA. Client's social security disability benefits were seized through the Treasury Offset Program (TOP). Client hired the Firm to represent him as the debt continued to snowball despite seizure of his social security benefits and federal tax refunds as the involuntary payments were first applied to Treasury's collection fees, then to accrued interest with minimal allocation to the SBA principal balance.
We initially submitted a Cross-Servicing Dispute (CSD) challenging the referral of the debt to Treasury based on the defective notice sent to the defunct business address. Despite overwhelming evidence proving a violation of the Client's Due Process rights, the SBA still rejected the CSD. As a result, an Appeals Petition was filed with the SBA Office of Hearings & Appeals (OHA) Court challenging the SBA decision and its certification the debt was legally enforceable in the amount claimed. After several months of litigation before the SBA OHA Court, our Firm Attorney successfully negotiated an Offer in Compromise (OIC) Term Workout with the SBA Supervising Trial Attorney for $82,000 spread over a term of 74 months at a significantly reduced interest rate saving the Client an estimated $241,000 in Treasury collection fees, accrued interest (contract interest rate and Current Value of Funds Rate (CVFR)), and the PCA contingency fee.
Small business and guarantors obtained an SBA COVID-EIDL loan for $1,000,000. Clients defaulted causing SBA to charge-off the loan, accelerate the balance and refer the debt to Treasury's Bureau of Fiscal Service for collection. Treasury added nearly $500,000 in collection fees totaling $1,500,000. Clients were served with the SBA's Official 60-Day Notice and exercised the Repayment option by applying for the SBA’s Hardship Accommodation Plan. However, their application was summarily rejected by the SBA without providing any meaningful reasons. Clients hired the Firm to represent them against the SBA, Treasury and a Private Collection Agency. After securing government records through discovery, we filed an Appeals Petition with the SBA Office of Hearings & Appeals (OHA) court challenging the SBA's referral of the debt to Treasury. During litigation and before the OHA court issued a final Decision and Order, the Firm successfully negotiated a reinstatement and recall of the loan back to the SBA, a modification of the original repayment terms, termination of Treasury's enforced collection and removal of the statutory collection fees.
Clients executed personal and corporate guarantees for an SBA 7(a) loan from a Preferred Lender Provider (PLP). The borrower corporation defaulted on the loan exposing all collateral pledged by the Clients. The SBA subsequently acquired the loan balance from the PLP, including the right to collect against all guarantors. The SBA sent the Official Pre-Referral Notice to the guarantors giving them sixty (60) days to either pay the outstanding balance in full, negotiate a Repayment (Offer in Compromise (OIC) or Structured Workout (SW)), challenge their alleged guarantor liability or file a Request for Hearing (Appeals Petition) with the SBA Office of Hearings & Appeals.
Because the Clients were not financially eligible for an OIC, they opted for Structured Workout negotiations directly with the SBA before the debt was transferred to the Bureau of Fiscal Service, a division of the U.S. Department of Treasury for enforced collection.
The Firm was hired to negotiate a global Workout Agreement directly with the SBA to resolve the personal and corporate guarantees. After submitting the Structured Workout proposal, the assigned SBA Loan Specialist approved the requested terms in under ten (10) days without any lengthy back and forth negotiations.
The favorable terms of the Workout included an extended maturity at an affordable principal amount, along with a significantly reduced interest rate saving the Clients approximately $181,000 in administrative fees, penalties and interest (contract interest rate and Current Value of Funds Rate (CVFR)) as authorized by 31 U.S.C. § 3717(e) had the SBA loan been transferred to BFS.
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