Federal Disaster Loans are available from several federal agencies; the two primary sources are the Small Business Administration (SBA) and the Federal Emergency Management Administration (FEMA). If you're wondering if you qualify, first, check to see if your area was declared a "disaster area." That's a requirement for any type of disaster loan.
Declaring a Federal Disaster Area
The state governments have the power to declare an emergency, and the federal government can elect to accept the findings of the state. If the federal government does agree with the state's decision, then the area is declared a federal disaster area. The declarations enable a wide range of resources including the National Guard and emergency assistance for evacuations, temporary housing, medical care, and the delivery of food and water. In the immediate aftermath of emergency and rescue efforts, the federal agencies provide assistance in recovery. This includes disaster loans to communities, businesses, homeowners, and individuals.
SBA Federal Disaster Loans
The SBA provides direct federal loans to businesses and homeowners in declared disaster areas. The loan funds are an exception to the normal SBA financial assistance programs, which do not involve direct loans to persons or businesses. The SBA provides loans for rebuilding homes, apartments, and businesses damaged or destroyed by natural disasters. FEMA, which is part of the Department of Homeland Security, provides disaster assistance and loans. Its primary program is the community disaster assistance program, which provides funds to state and local governments affected by a natural disaster. The program provides general revenue funds to counter loss of tax revenues so that emergency services can proceed. Localities can use these general revenue replacement funds as they may determine. The local government can use loan funds in ways that the jurisdiction could use its own funds.
The SBA Disaster Loan programs have four parts:
- loans to businesses,
- loans to homeowners,
- loans to individuals and businesses for economic injury,
- loans to businesses for military personnel related economic injury.
The business physical disaster loans carry interest rates up to 4% and business owners may use loan funds to replace supplies, equipment, fixtures, and repair the physical location. Economic injury loans can compensate for losses caused by disasters that prevent a business from meeting its normal obligations such as payments to employees, suppliers, and creditors. "Military reserve" economic losses compensate a business for losses due to an employee’s call to serve in the military in a disaster.
Federal Disaster Loan Regulations
Businesses and individuals can make applications for SBA disaster loans online or using paper forms. There are strict rules for the use of loan proceeds, and you cannot use loan proceeds to expand or enhance a location except to prepare to avoid a recurrence of damages such as building flood controls or reinforcing a structure against wind or flood. The SBA seeks to collateralize disaster loans and uses flexible standards to determine collateral. Liens and mortgages are typical instances of disaster loan collateral.
Homes used as primary residences are eligible for SBA disaster loans, as are rental properties in the declared disaster area. The limit for home repairs is $200,000. Renters can borrow up to $40,000 to replace losses including cars, furnishings, and personal effects.
