Some of those might survive thanks to proceeds from "business
interruption" insurance--a subset of broader casualty policies
underwritten by such firms as CNA Financial (nyse: CNA - news - people
), American International Group (nyse: AIG - news - people ) and Chubb (nyse:
CB - news - people ). Others will go begging elsewhere.
Enter the Small Business Administration. Traditionally a guarantor of
small-business loans, the federally funded SBA also acts as a direct
lender to disaster-stricken entrepreneurs. Last summer, the SBA made
$2.1 billion in loans to 64,500 applicants, after four hurricanes
slammed Florida within two months.
In the wake of Katrina, last Thursday both the House and Senate passed
bills that raise the ceiling on SBA business disaster loans to $10
million from $1.5 million. Borrowers would also be allowed to defer
initial repayment for one year. All good news for KO'd
entrepreneurs--assuming President George W. Bush approves the measures.
Business disaster loans typically carry a 4% interest rate (compared
with the current prime rate of 6.5%), and payments stretch up to 30
years. Its moniker notwithstanding, the SBA also makes home loans--at an
attractive 2.687% rate--to non-business owners: up to $200,000 for home
repair or replacement, $40,000 for other personal property and an
additional 20% of the loan amount for preventative measures.
Processing all that paper in a timely fashion is quite another matter,
however. Months ago, the SBA installed a new data processing system to
deliver disaster loans faster, but a lack of computer hardware and human
operators have gummed up the works, the Los Angeles Times reported
yesterday.
Before Katrina, the SBA had 800 employees spread across four field
offices in Sacramento, Calif., Dallas, Atlanta and Buffalo, N.Y. Of that
number, 339 were loan officers, and 91 were "loss verifiers"--people who
tour locations to assess the damage itemized in loan applications. As of
Friday, the SBA had mailed out 772,000 Katrina-related loan
applications, 84% for home loans. (No business loans have been approved
thus far.)
The SBA has added temporary recovery centers in Alabama, Mississippi and
Baton Rouge, La., as well as 1,512 new workers--an undisclosed fraction
of which, presumably, can crunch numbers on loans. While applicants
usually wait about three weeks to receive initial disbursements, says
SBA spokesperson Carol Chastang, "Given the circumstances, it's going to
take a little longer."
Filling out an application is no mean feat, either. While the 1995
Paperwork Reduction Act streamlined matters a bit, this still isn't
exactly a user-friendly exercise. "Don't be daunted," urges Chastang.
"Do the application. We work with people."
Here, then, is an entrepreneur's guide to securing an SBA disaster loan.
First, don't call the SBA. Instead, call the (massively overburdened)
Federal Emergency Management Association (800-621-FEMA), and be prepared
for endless busy signals. After asking a series of questions to assess
the damage, FEMA will either sluice callers to the SBA or handle matters
itself, perhaps by offering short-term grants.
Borrowers can apply one of three ways--for a "physical damage" loan, an
"economic-injury disaster loan" or both. Physical damage loans make
sense for brick-and-mortar stores that got flattened or flooded.
Economic-injury loans come in handy when, say, your key supplier has
been disrupted by a storm, in turn crimping your cash flow.
Happily, businesses of all sizes--and even nonprofits--can apply for a
physical damage loan. By contrast, only small businesses (the SBA won't
specify the requirements here) can apply for economic-injury disaster
loans. If applying for both, total borrowings still can't exceed $1.5
million. Note: Just because a company carries business-interruption
insurance does not preclude it from nabbing an SBA disaster loan to
cover underinsured losses.
Then there are the forms. Applicants can download the documents from the
SBA Web site (www.sba.gov) or request them by mail.
The paper chase--for both physical damage and economic-injury
loans--includes a two-page loan application (form No. 5); copies of the
three most recent tax returns for both the business and the applicant; a
tax-authorization form (No. 8821, which permits the SBA to access IRS
records); a current-income statement (form No. 413) and a schedule of
liabilities (form No. 2208). In addition, each proprietor, general
partner and stockholder owning more than 20% must file a personal
financial statement (form No. 413).
In addition, physical damage loans demand a brief description of all of
the assets wrecked in the disaster (form No. 739), while economic injury
loans require an explanation of the economic losses suffered (form No.
1368).
Borrowers needing help filling out the forms--and they will need
help--should call the SBA at (800) 659-2955. They should also call a
lawyer.
What happens if your paperwork is tossed to the winds or submerged in a
lake of sewage? "We are really flexible," Chastang insists. "The big
things are the tax returns, and we can get those from the IRS." As for
proof of something as intangible as economic injury, "We are relying on
what [business owners] tell us," she admits.
Fine print in the loan application optimistically pegs the estimated
time to complete it at a jaunty three hours. "I would disregard that,"
concedes Chastang.
Deadlines? Applications for physical damage loans are due by Oct. 28--as
in, next month--while economic damage loans aren't due until May 29.
Given all of the chaos Katrina has wrought, says Chastang, "Those
deadlines will likely be extended."
Related Articles:
Disaster Biz Loans
Disaster Business Loans
Home and Personal Property Disaster
Loans
Disaster Planning
SBA Disaster
FAQ
This article first appeared
here. |
