emse232

Institute for Crisis, Disaster, and Risk Management

Crisis and Emergency Management

January 2004 Volume 5 - Number 4

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Samll Business Administration...

Class Project: Revise Chapter 5 Section on Small Business Administration
By Andrew Levinson

In the class text, Introduction to Emergency Management, Chapter 5 contains a summary of programs available for recovery assistance. The section on the Small Business Administration's (SBA) critical programs warrants revision and expansion. Topics for update and expansion include:

· Understanding How Disaster Declarations Are Made - The section must include a reference to the need for a Presidential disaster declaration and the option for an SBA Administrative Declarations. These administrative declarations may be made when at least 25 homes (primary residences) and/or businesses in a county have uninsured losses of 40% or more of their estimated fair replacement value or when at least three businesses have uninsured loss of 40% or more of their estimated fair replacement value and, as a direct result of the damages, 25% of the work force in the community would be unemployed for at least 90 days.

· The text should emphasize that there are now three types of disaster loans: Home Disaster Loans: Loans to homeowners or renters to repair or replace disaster damages to real estate of personal property owned by the victim. Business Physical Disaster Loans: Loans to businesses to repair or replace disaster damages to property owned by the business. Economic Injury Disaster Loans: Loans for working capital to small businesses and small agricultural cooperatives to assist them through the disaster recovery period.

· Possible Topic For Case Study: California Wildfires

· Update: SBA Assistance to Victims of 9/11 - In the 15 months following the September 11th attacks on the World Trade Center and the Pentagon, more than 10,000 business owners across the nation have been approved for more than $1 billion in SBA Economic Injury Disaster Loans, saving 166,000 jobs.

SBA Disaster Recovery Mission

The mission of Small Business Administration’s (SBA) Disaster Assistance Program is to offer financial assistance to those who are trying to rebuild their homes and businesses in the aftermath of a disaster. By offering low-interest loans, the SBA is committed to long-term recovery efforts.

http://www.sba.gov/disaster_recov/basics/mission.html

Understanding How Disaster Declarations Are Made

All declaration requests must come from the Governor or authorized representative. The Governor can ask for a Presidential disaster declaration or a Small Business Administration (SBA) Administrative declaration, depending upon the severity of the disaster. A Presidential declaration makes many Federal and State programs available, including SBA loans. An SBA declaration makes only SBA loans available.

Presidential Declarations

The Governor contacts the Federal Emergency Management Agency (FEMA) if the State believes damages justify a Presidential declaration. FEMA conducts a Preliminary Damage Assessment (PDA) of the area. The SBA joins FEMA, State and local representatives in the PDA when the damages include homes and businesses. If the PDA shows enough damages, the Governor can ask for a declaration. FEMA forwards the Governor’s request and the PDA results to the President for a decision. If the President declares the area for Individual Assistance, SBA offers physical and economic injury loans in the declared counties and economic injury loans only in contiguous counties.

SBA Administrative Declarations

If the damages are less extensive the Governor can ask for an SBA declaration. When the Governor’s request for assistance is received, a survey of the damaged area(s) is conducted with State and local officials, and the results are submitted to the Administrator for a decision. When the Administrator of SBA declares an area, both primary and adjacent counties are eligible for the same assistance.

• SBA will make a physical disaster declaration when:

At least 25 homes (primary residences) and/or businesses in a county have uninsured losses of 40% or more of their estimated fair replacement value (Secondary homes, condominium units, cabins, camps, lake homes, etc., used for recreational purposes are not included in the count.)

or

At least three (3) businesses have uninsured loss of 40% or more of their estimated fair replacement value and, as a direct result of the damages, 25% of the work force in the community would be unemployed for at least 90 days.

• SBA will make an economic injury disaster declaration when:

A Governor certifies that at least 5 small businesses in a disaster area have suffered substantial economic injury as a result of the disaster and are in need of financial assistance not otherwise available on reasonable terms,

or

The Secretary of Agriculture designates an area as an agricultural disaster area. SBA may make Economic Injury Disaster Loans to small business concerns and small agricultural cooperatives in the designated counties without credit available elsewhere,

or

The Secretary of Commerce makes a commercial fishery failure or fishery resource disaster under Section 308(b) of the Interjurisdictional Fisheries Act of 1986.

http://www.sba.gov/disaster_recov/basics/declarations.html

Home and Personal Property Disaster Loans

If a person is in a declared disaster area and are the victim of a disaster, they may be eligible for financial assistance from the U.S. Small Business Administration - even if they don't own a business. As a homeowner, renter and/or personal-property owner, they may apply to the SBA for a loan to help them recover from a disaster.

Assistance Available

As an individual, there is one basic loan, with two purposes, available:

Personal Property Loan: This loan can provide a homeowner or renter with up to $40,000 to help repair or replace personal property, such as clothing, furniture, automobiles, etc., lost in the disaster. As a rule of thumb, personal property is anything that is not considered real estate or a part of the actual structure. This loan may not be used to replace extraordinarily expensive or irreplaceable items, such as antiques, collections, pleasure boats, recreational vehicles, fur coats, etc.

Real Property Loan: A homeowner may apply for a loan of up to $200,000 to repair or restore their primary home to its pre-disaster condition. The loan may not be used to upgrade the home or make additions to it. If, however, city or county building codes require structural improvements, the loan may be used to meet these requirements. Loans may be increased by as much as 20 percent to protect the damaged real property from possible future disasters of the same kind.

Insurance Proceeds: If the individual has insurance coverage on their personal property/home, the amount received from the insurance company will be deducted from the total damage to the property in order to determine the amount for which they are eligible to apply to the SBA.

Interest Rates on Loans: The law requires a test of the individuals' ability to obtain funds elsewhere in order to determine the rate of interest that will be charged on the loan. This credit-elsewhere test also applies to applicants for both personal property and real property loans.

Applicants Determined Unable to Obtain Credit Elsewhere: The interest rate to be charged will be half of the interest rate charged to applicants determined to be able to obtain credit elsewhere, but will not be more than 4 percent per year.

Term of Loan: The maximum maturity, or repayment term of an SBA loan, is set at 30 years. However, the SBA will determine repayment terms on a case-by-case basis according to the individuals' ability to repay.

http://www.sba.gov/disaster_recov/loaninfo/property.html

Physical Disaster Business Loans

If a business -- large or small -- has suffered physical damage as a result of a disaster, it may be eligible for financial assistance from the U.S. Small Business Administration. Any business that is located in a declared disaster area and has incurred damage during the disaster may apply for a loan to help repair or replace damaged property to its pre-disaster condition. The SBA makes physical disaster loans of up to $1.5 million to qualified businesses.

The loan may be used to: repair or replacement of real property, machinery, equipment, fixtures, inventory and leasehold improvements. In addition, disaster loans to repair or replace real property or leasehold improvements may be increased by as much as 20 percent to protect the damaged real property against possible future disasters of the same type.

SBA loans will cover uninsured physical damage. If you are required to apply insurance proceeds to an outstanding mortgage on the damaged property, you can include the amount applied in your disaster loan.

The interest rate that the SBA charges on a disaster loan is determined by the businesses' ability to obtain credit elsewhere - that is, from nonfederal sources.

If the SBA determines that the business (or nonprofit organization) is unable to obtain credit elsewhere (considering the cash flow and assets of the business, its principals and affiliates), the law sets a maximum interest rate of 4 percent per year.

The maximum maturity for such business disaster loans is 30 years. However, the actual maturity is based on the businesses' ability to repay the loan.

http://www.sba.gov/disaster_recov/loaninfo/phydisaster.htmlhttp://www.sba.gov/disaster_recov/loaninfo/phydisaster.html

Possible Topic For Case Study: California Wildfires

See attached

Update: SBA Assistance to Victims of 9/11

In the 15 months following the September 11th attacks on the World Trade Center and the Pentagon, more than 10,000 business owners across the nation have been approved for more than $1 billion in SBA Economic Injury Disaster Loans, saving 166,000 jobs.

See attached

Acronyms

FEMA Federal Emergency Management Agency

PDA Preliminary Damage Assessment

SBA Small Business Administration