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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.
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.
Client’s small business obtained an SBA 7(a) loan for $150,000. He and his wife signed personal guarantees and pledged their home as collateral. The SBA loan went into default, the term or maturity date was accelerated and demand for payment of the entire amount claimed was made. The SBA lender’s note gave it the right to adjust the default interest rate from 7.25% to 18% per annum. The business filed for Chapter 11 bankruptcy but was dismissed after 3 years due to its inability to continue with payments under the plan. Clients wanted to file for Chapter 7 bankruptcy, which would have been a mistake as their home had significant equity to repay the SBA loan balance in full as the Trustee would likely seize and sell the home to repay the secured and unsecured creditors. However, the SBA lender opted to pursue the SBA 7(a) Guaranty and subsequently assigned the loan and the right to enforce collection to the SBA. Clients then received the SBA Official 60-Day Notice and hired the Firm to respond to it and negotiate on their behalf. Clients disputed the SBA’s alleged balance of $148,000, as several payments made to the SBA lender during the Chapter 11 reorganization were not accounted for. To challenge the SBA’s claimed debt balance, the Firm Attorneys initiated expedited discovery to obtain government records. SBA records disclosed the true amount owed was about $97,000. Moreover, because the Clients’ home had significant equity, they were not eligible for an Offer in Compromise or an immediate Release of Lien for Consideration, despite being incorrectly advised by non-attorney consulting companies that they were. Instead, our Firm Attorneys recommended a Workout of $97,000 spread over a lengthy term and a waiver of the applicable interest rate making the monthly payment affordable. After back and forth negotiations, SBA approved the Workout proposal, thereby saving the home from imminent foreclosure and reducing the Clients' liability by nearly $81,000 in incorrect principal balance, accrued interest, and statutory collection fees.
Clients personally guaranteed an SBA 504 loan balance of $337,000. The Third Party Lender had obtained a Judgment against the clients. We represented clients before the SBA and negotiated an SBA OIC that was accepted for $30,000.
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