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Funding the fire recovery for small business

This story is one of several from the May 7 issue about business owners who were part of the nearly $140 million in Small Business Administration loans made in the North Bay from October through April.

In the wake of the devastating wildfires last fall, there are stories of business owners who are making a comeback. In addition to tapping insurance policies and other resources, some of using SBA loans to rebuild.

Fire-related SBA loans by the numbers

Oct. 14, 2017–April 23, 2018

Total applications: 3,527 (2,922 for homes, 605 for businesses)

Withdrawn or put on hold: 1,032 (844 for homes, 188 from businesses)

Declined: 1,270 (1,033 for homes, 237 for businesses)

Pending: 15 (8 for homes, 7 for businesses)

Source: SBA

Read more about business recovery from the October wildfires: nbbj.news/recovery

October’s wildfires in Napa and Sonoma counties resulted in more than $139 million in disaster assistance loan payouts by the U.S. Small Business Administration through April 23, by far the largest among the California counties affected by wildfires.

Loans to businesses accounted for only a small part of the Napa–Sonoma total of loans approved — 162 — while the federal agency approved 933 loans to aid homeowners in recovery, according to Tanya N. Garfield, director of the SBA’s Disaster Field Operations Center–West.

Throughout California, 3,527 SBA loan applications were received from those affected by separate fires last year in eight counties: Butte, Lake, Mendocino, Napa, Nevada, Orange, Sonoma and Yuba counties.

The overall dollar amount of the approved federal SBA disaster assistance loans throughout all eight counties was $153,608,900 as of April 23. Of this total, $21,457,800 was approved for 173 business loans and $132,151,100 for 1,037 approved homeowner loans to help recovery and rebuilding efforts following the most devastating fires in California history.

An analysis of the 3,527 SBA loan applications received shows that 2,922 were for home loans and 605 for businesses. Of this total, 844 SBA loan applications from homeowners and 188 from businesses were withdrawn, or put on hold, and 1,033 home and 237 business loans were declined. Another 15 applications — eight for homes and seven for businesses — are still pending.

Some of the applications received were withdrawn because the applicant chose not to pursue the loan. Others were declined because the applicant did not file federal tax returns, or because SBA did not have sufficient information to reach a loan decision.

“Our goal is to get owners of homes and businesses impacted by the fires back as close as possible to predisaster conditions,” said SBA Public Information Officer Garth MacDonald, with the Office of Disaster Assistance, Field Operations Center-West. “Sometimes the loan-application process is delayed as fire victims gather information to make informed decisions, get their lots cleared, handle insurance issues, have EPA tests, obtain building permits and search for contractors, but these considerations should not slow down the loan-application process.

“We urge people to apply for SBA loans prior to the settlement of insurance claims so we can start getting them the money they need. Typically, that first disbursement, up to $25,000, is sent five days after we complete the loan approval process and loan closing with the borrowers.”

According to Richard Jenkins, manager of the Public Information Office, Field Operations Center-West, during the processing of each application, the SBA looks at three things when making loan decisions:

1. Is the disaster damage eligible? SBA does not cover secondary homes, hobby businesses, etc.

2. Does the applicant have the ability to repay a disaster loan based on the predisaster financial condition of the business?

3. Applicant credit-worthiness.

SBA also takes into consideration any insurance, or other recoveries, so that the disaster loan will not duplicate those payments. The SBA is prohibited by law from duplicating other recovery payments for the same losses.

“Often a business owner will borrow less money than SBA has approved to minimize their debt, even though SBA loans generally have much more favorable terms than private sector financing,” Jenkins said.

As work order and repair receipts for fire-related services come in and rebuilding estimates are received, SBA disaster assistance loans can be modified up or down to meet changing needs and conditions, he said. If a borrower later decides that he or she does not need the approved amount, their disaster loan can be either reduced to the amount needed or canceled.

Funding the fire recovery for small business

This story is one of several from the May 7 issue about business owners who were part of the nearly $140 million in Small Business Administration loans made in the North Bay from October through April.

In the wake of the devastating wildfires last fall, there are stories of business owners who are making a comeback. In addition to tapping insurance policies and other resources, some of using SBA loans to rebuild.

Fire-related SBA loans by the numbers

Oct. 14, 2017–April 23, 2018

Total applications: 3,527 (2,922 for homes, 605 for businesses)

Withdrawn or put on hold: 1,032 (844 for homes, 188 from businesses)

Declined: 1,270 (1,033 for homes, 237 for businesses)

Pending: 15 (8 for homes, 7 for businesses)

Source: SBA

Read more about business recovery from the October wildfires: nbbj.news/recovery

“We ask those receiving SBA loans to keep us informed on the status of what they are doing, so if there are new building code requirements, changes in replacement costs or if other unforeseen issues arise, we can adjust the loan amount or the disbursement schedule accordingly,” Jenkins said. “We stay close to our clients at every stage, from the initial application, through processing, approval, closing and disbursement, to help them manage their losses and get back on their feet.”

SBA disaster loans

Interest rates for SBA October wildfire disaster loans can be as low as 1.75 percent for homeowners and renters, 3.305 percent for businesses and 2.5 percent for private nonprofit organizations, with terms up to 30 years. SBA disaster loans can also be used to pay costs associated with relocation. For the October fires, the deadline to apply for property damage loans expired on Dec. 11.

“Although the deadline for physical property damage loans has passed, small businesses and most private, nonprofit organizations of any size may continue to apply for an economic injury disaster loan (EIDL) covering the loss of business revenue and to help meet working capital needs caused by the disaster,” Garfield said. “The deadline to submit an EIDL application is July 12, 2018.”

Small nonfarm businesses, small agricultural cooperatives, small businesses engaged in aquaculture and most private nonprofit organizations of any size may qualify for an EIDL up to $2 million to help meet financial obligations and operating expenses which could have been met had the disaster not occurred. These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact.

The SBA interest rate for an Economic Injury Disaster Loan is 3.305 percent for businesses and 2.5 percent for private nonprofit organizations with terms up to 30 years. Of the total business applications received, 248 applications were for stand-alone EIDL only with no physical damage funds.

Near 50 percent loan approval

MacDonald said of the SBA loan applications received for full processing, almost 50 percent were approved, and only 15 loans remain to be completely processed. Only a very small number of businesses are still submitting applications for EIDL-only loans.

Nationwide, the Small Business Administration has established performance metrics for its operations that include a goal to process up to 85 percent of EIDL disaster loan applications within 21-28 days. For the California wildfires, the volume of loan applications caused a backlog that exceeded this time frame. However, most approved loans had an initial disbursement within two months after the application filing, according to feedback from several SBA loan recipients in Sonoma and Napa counties.

Other SBA objectives include striving to have homes with physical damage, as well as housing units for renters, restored within six months after a final SBA loan disbursement — final disbursements can be made up to a year after an initial payment, with partial amounts disbursed in between. Disbursements are often timed to match the pace of construction.

“Sixty customer service representatives and public information officers from the SBA Field Operations Center-West worked in local communities to support the major Presidential disaster declaration for the October California wildfires,” MacDonald said. “Our personnel were on hand at local assistance centers in major areas impacted by the fires to provide victims with information needed to file loan applications. SBA staff members were often the last ones to leave these facilities long after the smoke had cleared and other federal agencies had departed.”

MacDonald said SBA field personnel are currently deployed in Texas for Hurricane Harvey, in American Samoa for Tropical Storm Gita, and in other areas of the U.S. to respond to floods, mudslides, high winds, tornadoes and wildfires.