U.S. Small Business Administration (SBA) Disaster Loan Program

The U.S. Small Business Administration (SBA) was established as an independent agency in 1952 with a mission to help Americans start, build, and grow businesses. SBA offers a range of financing and other assistance in a post-disaster context. The SBA Disaster Loan Program supports businesses, private nonprofit organizations, homeowners, and renters located in declared disaster areas by providing affordable, timely, and accessible low-interest, long-term loans for losses not fully covered by insurance or other means. Specifically, SBA Disaster Loans can supplement funds eligible parties may receive from the Federal Emergency Management Agency (FEMA) or U.S. Department of Housing and Urban Development (HUD) or insurance (National Flood Insurance Program or private providers). SBA disaster assistance is available following a presidentially declared disaster. SBA also has its own authority to declare disasters in areas that can meet a lower threshold in circumstances where at least 25 businesses or homes have uninsured losses of at least 40 percent based on their pre-disaster fair market value within a county or jurisdiction. The SBA Disaster Loan Program is funded by both annual and disaster supplemental appropriations. Since 1953, SBA has approved nearly $64 billion to 2.2 million businesses, homeowners, and renters post-disaster. 

Any business or organization located in a declared disaster area that has incurred damage from that disaster may apply for an SBA Disaster Loan to help replace or restore damaged property. Businesses and organizations in a declared disaster area may also qualify for an Economic Injury Disaster Loan (EIDL) if they have suffered an economic injury, regardless of physical damage. In addition, homeowners and renters in a declared disaster area impacted by a disaster are also eligible for financial assistance from the SBA, even if they do not own a business. The main advantages of SBA disaster recovery loans are that they offer low-interest, long-term loans to a variety of different types of entities and in multiple circumstances beyond presidentially declared disasters. Therefore, receipt of funding may be faster than from other federal sources. One tradeoff, however - when compared to disaster assistance grants from FEMA or HUD that are reimbursable - is that SBA disaster recovery loans must be repaid. Nonetheless, federal reforms under the Disaster Recovery Reform Act in 2018 could change potential repayment obligations for some parties receiving SBA loans in the future. 

SBA Disaster Loan: Businesses and Private Nonprofit Organizations

To qualify for a SBA Disaster Loan, a business or private nonprofit organization must have physical damage or economic harm and be located in a disaster declared area. Unlike other SBA programs, the SBA Disaster Loan Program is not limited to small businesses; businesses of all sizes as well as non-business entities are eligible for loan support up to $2 million to repair or replace the following:

  • Damaged or destroyed real estate
  • Machinery and equipment
  • Inventory and other business assets

Under the program, SBA may also refinance all or part of a prior mortgage or lien, in certain cases. Financial assistance from the SBA Disaster Loan Program is the main federal financial assistance available to cover the repair and rebuilding costs from non-farm, private sector disaster losses. FEMA refers all eligible businesses to SBA.

SBA Disaster Loan: Homeowners and Renters

Homeowners are generally eligible for a 30-year term and fixed, low-interest loan of up to $200,000 to repair or replace their primary residence, in addition to a loan of up to $40,000 for personal property (available to both homeowners and renters). Homeowners can increase their SBA loan eligibility up to the full replacement value of the original property if they relocate out of the FEMA Special Flood Hazard Area (SFHA) (100-year or one-percent-annual-chance floodplain) and their property is “substantially damaged” (a federal regulatory standard). In this context, homeowners are not required to sell their damaged properties but SBA will hold a lien on a person’s original, damaged property to prevent a duplication of benefits (see section below). FEMA only refers homeowners above a certain income level to SBA.

Loan Increases for Mitigation

Disaster loans may also be increased up to 20 percent of the confirmed physical losses to support improvements to increase disaster resilience. Borrowers have up to two years to request an increase to their loan. The maximum loan increase amount for homes is $200,000. Businesses, in contrast, have a maximum of $2 million for repair/replace loans and mitigation.

Economic Injury Disaster Loans (EIDL) 

Small businesses, small agricultural cooperatives, small businesses engaged in aquaculture and most private nonprofit organizations of all sizes can also qualify for EIDL, which offers up to $2 million to help meet working capital needs (the financial obligations that the business or organization could have met had the disaster not occurred) during the period they are affected by the disaster. EIDL support provides relief from economic injury caused directly by a disaster but is a working capital loan, which means it cannot be used to repair, replace, or purchase physical assets. The $2 million limit applies to all combined funding paid to a business and its affiliates for each disaster. EIDL support is available whether the business had any physical property damage or not.

Flood Insurance Requirements

Flood insurance is required on all loans where the damaged and/or collateral property is or will be located in a SHFA. For properties located outside of the SFHA, flood insurance is required on real and personal property. Insurance policies can be secured through either the federally administered National Flood Insurance Program or acceptable private alternatives that meet SBA requirements. 

Disaster Recovery Reform Act and Duplication of Benefits

Under Section 312(a) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) (42 U.S.C. § 5155), all federal agencies are required to prevent disaster assistance recipients from receiving more than one type of funding or financial assistance from a federal agency, insurance, or other source to cover the same loss. As a result, Section 312(a) of the Stafford Act prohibits the duplication of benefits (DOB), or the use of federal disaster assistance to pay for the same disaster loss already accounted for by other sources. In 2018, U.S. Congress signed the Disaster Recovery Reform Act (DRRA) into law with a provision allowing the president to waive certain DOB requirements, if a waiver is in the public interest and will not result in waste, fraud, or abuse (DRRA, section 1210a). Section 1210 of the DRRA, however, provides that a loan, like an SBA Disaster Loan, is not a prohibited DOB under Section 312(b)(4)(C) of the Stafford Act if federal funding only pays for a loss suffered as a result of a declared disaster (DRRA, section 1210(a)(1)). Accordingly, FEMA has interpreted the statute to read that the DRRA Section 312 waiver process is inapplicable when a state wants to use federal grant funds to repay a loan. Instead, DRRA provides that this determination is up to the grant awarding agency, like FEMA or HUD. A DOB agency determination to this effect could enable grant recipients greater flexibility to use FEMA or HUD funds to repay SBA loans. This provision of DRRA only applies to disasters declared between January 1, 2016, and December 31, 2021.

Louisiana was the first state to test DRRA Section 1210, which other states could also consider for purposes of leveraging FEMA or HUD funds to satisfy SBA loans. Despite FEMA’s interpretation of DRRA Section 1210 (regarding the difference in applying for DOB waivers compared to agency determinations for loans), in October 2018, Louisiana applied for a DOB waiver when Governor John Bel Edwards submitted a request to President Donald J. Trump. The governor’s request asked President Trump to waive any requirements to consider SBA loans as a DOB to funding appropriated by Congress to Louisiana through the HUD Community Development Block Grant – Disaster Recovery (CDBG–DR) program. In June 2019, HUD released unofficial guidance on DOB (84 Fed. Reg. 28,836, June 20, 2019). For Louisiana, the notable provision of HUD’s unofficial guidance provides: “to reimburse costs paid with subsidized loans for applicants with incomes that exceed 120 percent of [area median income] when the grantee requests, and HUD approves, a hardship exception for the applicants” (84 Fed. Reg. 28,836, June 20, 2019, V.B.3 “Use of CDBG–DR for Reimbursement of Costs Paid by Subsidized Loans Following DRRA Qualifying Disasters”). 

Further information about the SBA Disaster Loan Program, including terms and conditions, and details of the application process is available on the Disaster Assistance government website.

 

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