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September 13, 2017

Best Practices: SBA Provides Disaster Relief to Small Businesses

by Laura P. Amato

In the wake of the catastrophic devastation caused by hurricanes Harvey and Irma, the SBA has coordinated with FEMA to provide disaster assistance to small businesses in affected areas. Under the “Disaster Loan Program” eligible borrowers may be able to obtain a low interest fixed-rate loan to rebuild their businesses. Under the deferment program, borrowers may defer their loan payments for a period of time while rebuilding their business.

There are two types of loan programs relevant to business owners: Business Physical Disaster Loans and Economic Injury Disaster Loans. There are specific guidelines regarding loan eligibility, the maximum loan amount, and how the proceeds of such loans may be used.

Business Physical Disaster Loan Program

Businesses of any size are eligible for a Physical Disaster Loan from the SBA. A Business Physical Disaster Loan can be used to repair or replace uninsured real property, machinery, equipment, fixtures, inventory, and leasehold improvements that have been damaged or destroyed. For loans used to repair real property or leasehold improvements, the amount of such loans may be increased by up to 20 percent more than the total amount of the damage, so that borrowers may invest in protecting the damaged property against future disasters of the same type.

The law limits Business Physical Disaster loans to $2,000,000. Subject to this maximum, loan amounts cannot exceed the verified uninsured disaster loss, however, if a business is a major source of employment, the SBA has the authority to waive the $2,000,000 maximum limit.

Economic Injury Disaster Loans

An Economic Injury Disaster Loan (“EIDL”) can help a business owner meet their ordinary and necessary financial obligations that it cannot meet as a direct result of the disaster. An EIDL is intended to provide working capital to businesses through the disaster recovery period. Businesses, cooperatives, and most private, non-profit organizations of all sizes can be eligible for an EIDL.

The law limits EIDLs to $2,000,000; the actual amount of each loan is limited to the economic injury determined by SBA, less business interruption insurance and other recoveries up to the administrative lending limit.

Loan Deferment

As of August 28, 2017, the SBA has announced that it is providing a 12-month deferment of principal and interest payments for SBA-serviced business and disaster loans that were in “regular servicing” status on August 25, 2017, in counties designated as Federal disaster areas impacted by Hurricane Harvey. The SBA will be issuing notices to Borrowers of their automatic deferment status on their monthly payment notices.

The SBA has also authorized and encouraged lenders and certified development companies to offer up to 12 months deferment of principal and interest payments on existing SBA loans for customers located in the Federal disaster-designated counties impacted by Harvey. In addition, borrowers located in contiguous counties and parishes of the disaster areas who have suffered an adverse impact may be eligible for 9 months of deferment.

For more information on disaster loans, and updates on assistance for business impacted by Hurricane Irma and other natural disasters, check out the SBA’s disaster loan recovery website by clicking here.

For more guidance on how the SBA might provide disaster relief to small businesses, please contact Laura at 215-390-1061 or via email at lamato@starfieldsmith.com.