Federal Emergency Assistance
Small Business Administration
In the aftermath of a disaster the Small Business Administration (SBA) provides financial assistance in the form of low-interest, long-term loans to small businesses. Loans are managed by SBA’s Office of Disaster Assistance (ODA). They make up the principal source of federal aid available to businesses and individuals for repairing or replacing physically damaged property and recouping economic losses incurred as a result of a disaster. Loans become available only after a disaster is officially declared.
To qualify for a loan, applicants need:
- Three most recent Federal Income Tax Returns
- A current business balance sheet, profit and loss statement, and schedule of liabilities
- A personal financial statement from each owner or partner with a 20% or greater share in the business
- The latest Federal Income Tax Return for each affiliate
- A summary of damages or losses suffered as a result of the disaster
- Current insurance information, including a policy number, contact information for the agent/adjuster, and, if available, a proof of loss and the declaration page of the insurance policy.
*SBA requires an on-site inspection for every approved application to verify the declared damages. On average about 50% of loan applications are approved according to SBA's website. Common reasons for rejection include:
- insufficient financial resources to repay the loan
- poor credit history
- unsatisfied federal obligations, such as income taxes owed
- a prior default on an SBA loan
- refusal to pledge available collateral
- lack of any verifiable damage
Types of Loans
SBA offers two types of loans to businesses impacted by a disaster:
- Physical Disaster Business Loans: loans intended to finance the repair or replacement of damaged physical property.
- Economic Injury Disaster Loans (EIDLs): EIDLs are meant to help businesses recover from disaster-induced economic losses by providing funds to meet operating expenses and financial obligations that could have been met under normal circumstances.
Size of Loans
SBA offers a maximum of $2,000,000 for both physical disaster loans and EIDLs (and for a combination of physical and economic injury loans). The loan will be equal to SBA’s determination of need minus insurance payments, grants, and other recoveries up to the $2,000,000 lending limit. All loans over $14,000 require collateral, which often takes the form of a home offered as security.
SBA requires 21 days between receiving an application and making a final decision on a loan application. Response times vary depending on the completeness of an application, the size of the loan requested, the accessibility of the damaged property, and the volume of applications received.
Use of Funds
SBA loans include specific instructions on how the funds are to be used. Failure to follow these instructions could result in the termination of a loan. SBA may demand the return of the money that had been previously disbursed.
SBA disaster personnel should be available to assist, free of charge, with the completion of application forms.
Federal Emergency Management Agency
The Federal Emergency Management Agency (FEMA) provides assistance to victims of disasters through its Individuals and Households Program (IHP). Unlike SBA loans, FEMA’s aid comes in the form of grants that do not need to be repaid.
In order to qualify for IHP, an applicant is required to have filed for insurance benefits, and the property damage must not be covered. Unlike SBA loans, IHP cannot be used to cover business losses or repair damage to business-related property.
FEMA’s assistance is limited. IHP is intended to make homes “safe, sanitary, and functional,” not to return homes to their pre-disaster condition. A single IHP grant was limited to $28,200 in 2007 and $28,800 in 2008.
IHP grants are meant to be a source of funding of last resort for homeowners. Applicants may be referred to SBA to seek assistance through its homeowner loans. If SBA declines the loan, then applicants may be considered for IHP.
Internal Revenue Service
Under some circumstances, the Internal Revenue Service (IRS) will write off uncompensated losses sustained as a result of a disaster. The tax claims businesses are eligible to make may change based on whether a disaster has been officially declared.
The IRS has created a Disaster Losses Kit to assist business owners affected by major disasters or emergencies.