In the wake of hurricane Harvey, tens of thousands of homes and businesses have been damaged or destroyed by flood waters in southeast Texas. When big disasters strike, U.S. homeowners turn to the Federal Emergency Management Agency (FEMA) for disaster assistance grants. But, as victims of Hurricane Sandy learned, the small grants aren’t nearly enough to rebuild their homes.
Most homeowners will need to borrow money on top of their existing mortgages to have any chance of living in their homes again. That’s where the Small Business Administration (SBA) comes in. While it’s known primarily for facilitating loans to small businesses, the SBA also makes low-interest loans available to victims of natural disasters.
Harvey Left Most Homeowners and Businesses Exposed
Hurricane Harvey was particularly devastating because most of the damage was caused by record rainfall, topping more than 50 inches in some places. Many houses were submerged up to their rooftops, but many more were flooded just enough to cause irreparable damage. It is estimated that only 20 percent of Harvey’s flood victims had flood insurance that would cover at least part of the cost of rebuilding. The rest of the homeowners are left with more than $30 billion in damages to cover on their own.
Estimated business damages exceeded $25 billion, including lost economic output. Although a higher number of businesses have flood insurance, it provides limited coverage, leaving many businesses with no option other than to seek loans.
SBA is Quick to Act in Approving Loans
The Monday morning following the storm the SBA had already approved over 1,000 disaster loans for more than $100 million. It hired hundreds of local loan processors to ensure the timely processing of applications which numbered in the thousands. The SBA is prepared to process as many as 100,000 applications.
With $3.3 billion in disaster loan funds, the SBA program can only cover a fraction of the total damages incurred by homeowners and businesses; but, it is authorized to loan up to $200,000 for each occurrence. Even renters can benefit with up to $40,000 in loans. The loan rates are as low as 1.75 percent with terms of three to 30 years, depending on the borrower’s financial circumstances.
Business as Usual for SBA Small Business Financing
The SBA disaster loan program is administered as a separate program from its primary purpose, which is that of a loan guarantor for small businesses. For small businesses needing to access capital, the SBA designates certain banks for which it will guarantee a percentage of the loans for businesses that meet its qualifications. The SBA guarantees up to 85 percent of loans up to $150,000 and 75 percent for loans greater than $150,000. The maximum guarantee is for $3,750,000. For SBA Express loans the maximum guarantee is 50 percent.
The $3.3 billion at SBA’s disposal for disaster loans is appropriated separately by Congress as national disaster relief funds for 2017. So the SBA disaster loan program will have no effect on the ability of other small businesses to access capital through regular SBA loans and grants. In fact, small businesses that are SBA loan recipients are invited to apply for a disaster loan if they have been affected by Hurricane Harvey. The SBA is also automatically deferring principal and interest payments for twelve months for businesses in counties that have been declared as federal disaster areas. Businesses outside those areas may be eligible for a nine-month deferral. Home-based businesses may also apply for federal assistance through FEMA which provides cash grants for housing needs.