updated 5/12/2010 5:01:40 PM ET 2010-05-12T21:01:40

Thousands of small business owners across the South are turning to the federal government for financial help following the oil spill in the Gulf and last month's devastating tornadoes and floods.

The Small Business Administration's disaster loans are aimed at helping companies recover from uninsured losses suffered during natural or man-made disasters. They also help companies cover their expenses when disaster prevents them from operating.

Companies of any size can get disaster loans. There are two types: One covers physical damage from a disaster, while the second, called an economic injury disaster loan, is available to companies that have suffered substantial economic harm from a disaster.

The loans carry lower interest rates than a borrower would have to pay for a traditional loan. The rate for businesses unable to get credit elsewhere was 4 percent as of April 12. Those that could get credit elsewhere would pay 6 percent. The maximum term for a loan is 30 years.

Owners can learn about SBA disaster loans at the agency's website. Here is a quick guide to the loans:

Physical disaster loans
These loans provide money to replace or repair damaged property owned by a business that is located within a federally declared disaster area. So businesses in Alabama devastated by tornadoes or those in Tennessee that suffered damage during last month's storms are eligible.

Damaged property includes buildings, equipment, vehicles, inventory and supplies. The loans are for companies that have no insurance or whose losses exceed their insurance coverage. The loans are limited to the amount of damage, up to a maximum of $2 million.

The SBA may also lend a company additional money to cover the costs of what's known as disaster mitigation improvements. Those are changes such as the installation of sump pumps that are designed to limit damage in the future.

A company that is located in an area known as a special flood hazard area can be denied a loan if it was legally required to obtain flood insurance and did not do so. Companies can be required to have flood insurance under the terms of a prior SBA disaster loan or as a condition for taking out a mortgage.

Economic injury disaster loans
These loans, also known as EIDLs, are for companies that can't pay their bills because of a disaster. They don't have to suffer physical damage to be eligible.

The Gulf fishing industry is being devastated by the oil spill, so the people whose business is to catch fish, shrimp, crab and oyster can get EIDLs. So, too, can the companies that serve them, including docks, fishing equipment suppliers, boatyards and processors. As in the case of physical disaster loans, companies must be located within a federally declared disaster area to get an EIDL.

James Rivera, the SBA's associate administrator for the Office of Disaster Assistance, said EIDLs are intended to help a company pay its fixed operating expenses, such as rent, salaries and interest on mortgages. However, he said, "we won't replace profits or sales."

After the Sept. 11, 2001, terror attacks, the government took the unprecedented step of expanding eligibility for EIDLs beyond the declared disaster areas, allowing eligible companies hundreds or thousands of miles away to obtain loans. However, there's no indication yet that a similar change will be made in the case of the oil spill.

Companies can get EIDLs up to $2 million. However, if they also receive physical disaster loans, the maximum amount of the two loans combined will still be $2 million.

Are you eligible?
Rivera says that historically, 50 percent of applications for disaster loans have been approved. Companies need to show that they'll be able to repay their loans, so a business that is already in trouble may have a harder time than others getting a loan.

But, Rivera said of companies dealing with the aftermath of a disaster: "We'll try to help them stay in business." He encouraged owners to apply even if they believe their companies are too troubled to qualify.

"We tend to be more aggressive than a typical bank" in terms of granting loans, Rivera said.

The government does require, however, that owners put up collateral to obtain physical disaster loans over $14,000 and EIDLs over $5,000.

Rivera noted that businesses that get physical disaster loans can, under some circumstances, get the SBA's help in refinancing mortgages on their property. That will help ease their debt burden and monthly payments as they recover.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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