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Getting a disaster loan for your small business

The Small Business Administration’s disaster loan program is often the only salvation for companies affected by the hurricane without insurance, or whose insurance didn’t cover the damage.
/ Source: The Associated Press

Small business owners across the stricken Gulf Coast are expected to turn to the federal government for financial help in getting their companies running again. The Small Business Administration’s disaster loan program is often the only salvation for companies without insurance, or whose insurance didn’t cover all the damage.

The SBA offers two kinds of loans for business owners in regions that have been declared federal disaster areas. Parts of Louisiana, Mississippi, Alabama and Florida have already received disaster declarations following Hurricane Katrina’s devastating pass through those states.

The first type of loan is the physical disaster business loan, which provides businesses — of any size — with funds to repair or replace real estate, equipment, fixtures, machinery and inventory. Companies can receive loans of up to $1.5 million.

Physical disaster business loans are available only to businesses without insurance, or that suffered damage that extends beyond their coverage. However, the SBA’s Web site,, states, “if the business was legally required to maintain flood insurance but did not, then the SBA will not make a disaster loan.”

The second type of loan, the economic injury disaster loan, is available to small businesses that have suffered substantial economic injury due to a disaster. They can receive loans even if they suffered no physical damage — for example, if a company had to shut down because a disaster halted transportation and prevented deliveries from vendors or to customers. The SBA defines substantial economic injury as “the inability of a business to meet its obligations as they mature and to pay its ordinary and necessary operating expenses.”

Economic injury disaster loans are also available up to $1.5 million — but companies that apply for both kinds of loans can receive an aggregate loan amount of only $1.5 million.

Economic injury disaster loans have a limitation similar to the physical disaster loans; they’re available only to small businesses with no other sources of credit.

Both types of loans have interest capped at 4 percent per year. The term of the loan is determined on a case by case basis, up to a maximum of 30 years. The SBA may require that you put up collateral for a loan, but it also says it “will not decline a loan for lack of collateral.”

The SBA’s Web site has more information and questions and answers about disaster loans.

If your company is located outside a declared disaster area and suffered physical damage or economic losses, you cannot get loan money from the government. After the Sept. 11, 2001, terror attacks, the government took the unprecedented step of making economic injury loans available nationwide, but there is no indication that it plans a similar step following Katrina.

To apply for a disaster loan, a business should first register with FEMA, the Federal Emergency Management Administration. SBA spokeswoman Carol Chastang said FEMA will then refer businesses to the SBA to continue the process.

Chastang suggested business owners register with FEMA online if possible because of high phone call volume. Go to and look for the link that says “register online.”

FEMA can be reached by phone at 1 800 621-FEMA, or for speech or hearing impaired people, at 1 800 462-7585.

Although many business owners, particularly in New Orleans, are currently unable to go to their company sites to inspect the damage, Chastang said they can immediately begin the process to apply for a loan. Under more common circumstances, it can take just seven to 21 days for business owners to get their loan money after their applications are submitted, but given the anticipated prolonged inaccessibility of much of New Orleans, it is likely to take longer for those with damage from Katrina.

The problem is that before a loan can be granted, there must be an assessment of the damage to the business, and Chastang said, “it’ll be weeks before damage assessments will be able to be done.”

But, she said, the government planned to be ready with extra staff to help process loans quickly; last year, after four hurricanes pounded 13 states, temporary staffers were hired and other SBA employees were brought in from around the country to help.

Applying for a disaster loan is similar to applying for any other type of loan, which means you need to provide documents like financial statements and tax returns. Business owners who didn’t take their documents with them, and who lost everything to Katrina’s winds, rain and flooding, can still apply.

Chastang said the SBA can get copies of your business tax returns from the Internal Revenue Service. And your bank can provide statements for you; even if the bank is physically unavailable, it should have your records stored at a safe location.