SBA Disaster Loan Program Enhancements

SBA Administrator Isabella Casillas Guzman introduced a series of transformative updates to the agency’s disaster lending program, aimed at providing increased assistance to disaster survivors and small businesses grappling with the aftermath of federally declared disasters. These adjustments will be in effect for all disasters declared on or after July 31, 2023.

Administrator Guzman emphasized the Biden-Harris Administration’s commitment to optimizing resources for disaster survivors, allowing them to rebound effectively and cultivate resilience in the face of heightened climate change-induced natural disasters. She asserted that the modified disaster loan program rules at SBA will ensure that more adaptable and affordable disaster loans are accessible to small businesses, nonprofit organizations, renters, and homeowners. The ultimate goal is to expedite recovery, enabling communities to thrive once again.

Highlights of the Enhancements

Highlighting a momentous development, Bailey DeVries, Associate Administrator for Investment and Innovation and Acting Associate Administrator for Capital Access, noted that SBA is substantially elevating the caps for its home disaster loan program for the first time in nearly three decades. This increase is informed by factors such as inflation and escalating construction costs. By more than doubling the loan limits, SBA intends to provide communities across the nation with ample funding to reconstruct homes, replace personal belongings, and reopen businesses in the wake of disasters.

Francisco Sánchez Jr., Associate Administrator of SBA’s Office of Disaster Recovery and Resilience, underscored the agency’s transformative endeavors, which are designed to inject additional capital into devastated communities for rebuilding purposes and to broaden avenues for minimizing future damage. He emphasized the alignment of recovery with resilience and highlighted SBA’s active on-the-ground presence to align with community priorities.

SBA’s expansion of mitigation assistance is now extended to encompass various types of hazards beyond the specific disaster event declaration. This innovation recognizes the multi-dimensional threats faced by communities, including hurricanes, floods, tornadoes, wildfires, earthquakes, and more. The announcement ensures that property owners can employ their disaster loan funds to construct sturdier and more resilient structures capable of withstanding a spectrum of hazards, rather than just a single threat.

In 2022, Administrator Guzman initiated a waiver of interest for the first year and extended the initial payment deferment period to 12 months automatically for disasters declared between September 21, 2022, and September 30, 2023. The latest announcement makes this relief permanent, confirming that SBA will continue to alleviate the financial burden for disaster loan borrowers by waiving interest and payments during the initial year for all disaster loans beyond September 30, 2023.

Key Modifications Presented by SBA

• Increased Loan Limits for Primary Residence: Caps are raised from $200,000 to $500,000 to cover real estate repair or replacement, contractor malfeasance, refinancing, and mitigation for home disaster loans.
• Increased Loan Limits for Personal Property: Limits climb from $40,000 to $100,000 for replacing clothing, furniture, appliances, vehicles, and more for home disaster loans.
• Administrative Limit on Landscaping Eliminated: Landscaping costs are now tied to the overall real estate repair limit and are not capped at $5,000.
• Extended Initial Payment Deferral Period: The period for the first payment deferment is extended from 5 to 12 months for all disaster loans, alleviating the pressure on survivors to start repayments before communities have a chance to recover.
• No Interest Accrual for the First 12 Months: Interest is waived for the initial year from the date of the first disbursement for all disaster loans, providing genuine relief as loans won’t accumulate interest during deferment. This adjustment reduces the overall loan cost, supporting complete recovery for disaster survivors.
• Mitigation Disaster Loans: Property owners are no longer limited to mitigating against a “similar” disaster event; they can now use disaster loan funds to prepare for various types of future disasters, reducing the need for additional financial assistance.
• Collateral Requirements Clarification: SBA is providing clarity on collateral requirements for disaster loans by eliminating blanket liens on business assets that offer no liquidity in case of default. This gives SBA greater flexibility in determining necessary collateral.
• Reduced Reconsideration Documentation: The need for businesses to submit financial statements with every reconsideration or appeal request for previously declined applications is removed. SBA aims to simplify the process and reduce redundant paperwork.
• Expanded Eligibility for Cooperatives: Disaster lending now aligns with SBA’s 7(a) and 504 business loan programs, allowing consumer or marketing cooperatives to access the Economic Injury Disaster Loan (EIDL) and Military Reservist Economic Injury Disaster Loan (MREIDL) programs.

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