EMForum.org Presentation June 27, 2012
Small Business Administration (SBA) Disaster Assistance
for Homeowners, Renters, and Businesses of all Sizes
Public Information Officer
Mary "Kathy" Cook
Public Affairs Specialist
U. S. Small Business Administration (SBA)
Office of Disaster Assistance
This transcript contains references to slides which can be downloaded from http://www.emforum.org/vforum/SBA/SBADisasterAssistance.pdf
A video recording of the live session is available at http://www.emforum.org/pub/eiip/lm120627.wmv
An audio podcast is available at http://www.emforum.org/pub/eiip/lm120627.mp3
[Welcome / Introduction]
Amy Sebring: Good morning/afternoon everyone and welcome to EMForum.org. We are very glad you could join us today. I am Amy Sebring and will serve as your Moderator.
Now, you may or may not know that the U.S. Small Business Administration plays an important role in disaster recovery in the form of providing low interest loans to help people get back on their feet, beyond the assistance provided directly by FEMA.
Today we are going to learn more about various aspects of these programs with two experts from both the East and West Coast Field Operations Centers.
It is my pleasure to welcome Kevin Wynne based in Sacramento, CA and Kathy Cook, based in Atlanta, GA. Both of them now work in the area of public outreach and information, but they both have had considerable hands on experience in the past.
Kevin started with the SBA right after Katrina where he underwrote hundreds of loan applications, no doubt a challenging time for you Kevin. Kathy has more than 20 years experience with SBA, also working as a loan officer, supervisor and trainer.
Please see todays Background Page for further biographical detail, and related links to SBA information.
Welcome to you both, and thank you very much for taking the time to be with us today. I now turn the floor over to Kevin to start us off please.
Kevin Wynne: Thanks, Amy and good day to everyone. While SBA is generally known for its capital, counseling and contracting support of small businesses, the agency also plays a critical role in assisting the victims of declared disasters. Disaster assistance has been a part of SBA since its inception in 1953. Since then SBA has approved over 50 billion dollars in disaster loans.
After declared disasters such as hurricanes, floods, earthquakes, tornadoes and wildfires, SBA disaster loans are the primary form of federal disaster assistance for owners of private property. While insurance is the first line of defense, SBA can cover uncompensated losses, uninsured and underinsured losses.
SBA cannot duplicate benefits received from other agencies or insurance recoveries. In other words, SBA will not loan funds for something you have already received compensation, such as the grants or insurance recoveries.
SBA loans are not just for small businesses. For physical damages from a declared disaster, SBAs disaster loans are available to more than just small businesses. Through its Office of Disaster Assistance, SBA is responsible for providing affordable, timely and accessible financial assistance to homeowners, renters, businesses of all sizes and private non-profit organizations following a disaster. Financial assistance is available in the form of low interest long term loans.
In this Webinar we will cover how disasters are declared, types of disaster declarations, and conclude with the SBA disaster loan program.
After a disaster occurs, damages from a Preliminary Disaster Assessment are then accessed through FEMA or the U.S. Small Business Administration. Local and state governments share the responsibility for protecting their citizens from disasters and for helping them recover when a disaster strikes. In some cases a disaster is beyond the capabilities of the state and local government to respond.
When the state requests a FEMA Preliminary Damage Assessment for a Presidential Declaration, SBA participates with FEMA and state and local agencies to assess the damages. The PDA teams are evaluating all areas for personal damage, impact, and size of damaged area. The team will be evaluating physical damage to property, economics of the area, what type of disaster occurred, and determine if declaration criteria have been met.
In many cases entry into the home will be required to evaluate the true damage to the property. The local participation is the most important. They know where the damage is. They know the basements that were pumped by the local fire department if flooding was the cause of the disaster. They know areas that typically receive damage and they usually have developed trust with the locals.
When the state requests an SBA-only Preliminary Damage Assessment for an agency declaration, SBA conducts the survey with state and local officials to assess the damage.
Experience will generally tell the state emergency management directors that the Preliminary Damage Assessment, and any subsequent information that may be discovered, will not meet FEMA criteria in order to activate certain FEMA programs such as Individual Assistance, which is aid to individuals and households. FEMA will not participate in agency only Preliminary Damage Assessment.
Types of disaster declarations: The preliminary damage assessment will determine SBAs role in disaster recovery for either Presidential or Administrative Agency declarations. The Governors Certification, Secretary of Agriculture, Secretary of Commerce, Military Reservesthese are all SBA declarations. The discussion that follows is simply an overview of each of these declarations.
In Presidential declarations, many federal agencies provide assistance. FEMA is the coordinating agency and delivers certain forms of assistance. Individual Assistance includes necessary expenses for individuals and households. This program also provides grants to people in the declared disaster area whose property has been damaged or destroyed and whose losses are not covered by insurance.
The goal is to make the damaged home safe and sanitary. The program also provides temporary housing and assistance for those disaster applicants with serious needs.
Public Assistance is aid to public entities for certain emergency services and the repair or replacement of disaster damaged public facilities such as roads, bridges, and infrastructure. They also provide debris removal, remove downed trees, and mudslides.
SBA disaster loans are available with both types of declarations.
Presidential Declarations for Individual Assistance: Even though the maximum grant amount FEMA can offer is currently $31,400, not all households will qualify for that amount. Thus for many individuals, the SBA disaster loan program is the primary form of disaster assistance. In fact, nearly 80 percent of disaster loans funded since 1953 have been approved to homeowners and renters.
Kathy will be discussing our loan limits later on in the Webinar. Ill be referencing the Economic Injury Disaster Loan program shortly.
When the President declares a major disaster declaration for Public Assistance only, SBAs disaster loan program is activated, but only for private non-profit organizations specifically those providing essential government services like emergency medical facilities that provide direct care to patients including hospitals, clinics and outpatient services. Water treatment and distribution facilities for the public, and power companies for distribution of electricity all are eligible for assistance.
These private non-profit organizations register with FEMA. FEMA will determine if the private non-profit organization qualifies to apply for a grant from FEMAs Public Assistance program. All other eligible private non-profit organizationsand these would include museums, zoos, community centers and rehabilitation facilitieswill be referred to the SBA for a low-interest disaster loan to cover damages.
If SBA cannot approve a low-interest disaster loan or meet all the private non-profit organizations needs, the SBA may refer the PNP (private non-profit) back to FEMA.
Declaration differences: In Presidential declarations, SBA disaster loans for physical damages are only available to victims in primary counties specified in the declaration. This means they are not available to contiguous or adjacent counties.
Now with Economic Injury loans, it is available to contiguous or neighboring counties. SBA recognizes that businesses in the contiguous or neighboring counties may be doing business with some of the impacted businesses in the declared counties, and thus they may start having economic injury as well. In Presidential declarations for Public Assistance, SBA disaster loans are only available to the private non-profits in the primary counties.
When the Preliminary Damage Assessment indicates damages are insufficient for a Presidential declaration, the governor can request an administrative declaration through the SBA administrator. To generally qualify, at least 25 homes and/or businesses in a county must have uninsured losses of 40 percent or more of their estimated pre-disaster fair market value.
In SBA only declarations, SBA disaster loans for property damage and economic injury, both primary and contiguous counties are eligible for the same assistance. SBA recognizes that in those adjacent counties, a tornado may have impacted some homes or businesses but not enough to qualify as a primary county for example. Flooding also could be an impact on one county but not have as severe an impact on another. Disasters know no boundaries when they occur.
If a governor certifies that at least five small businesses in a state have suffered substantial economic injury as the result of a disaster and may need financial assistance not available on reasonable terms, the SBA will activate the Economic Injury Disaster Loan program, commonly referred to as an EIDL.
Physical disaster loans are not available under this kind of declaration. For example if a bridge goes out in a county and folks cant travel with their trucks, or businesses cant travel to other places, that would be an economic or a governors certification. The California freeze of a few years ago qualified as an economic injury disaster. Mudslides and major closing of thoroughfares that have been damaged by those mudslides would also qualify for the Economic Injury Disaster Loan program.
Economic Injury Disaster Loans provide necessary working capital until normal operations resume after a physical disaster. The law restricts Economic Injury Disaster Loans to small non-farm businesses, small agricultural cooperatives, small businesses engaged in aquaculture and most private, non-profit organizations of all sizes.
They are designed to help small businesses meet ordinary and necessary financial obligations that cannot be met as a direct result of the disaster. This would include such things as rent, payroll, and notes payable. These loans are intended to assist through the disaster recovery period. The law limits these EIDLs to two million dollars for alleviating economic injury caused by the disaster.
The actual amount of each of these loans is limited to the economic injury determined by SBA less any business interruption insurance and other recoveries up to the lending limit of two million dollars. If the business is a major source of employment of that county or town, SBA does have the authority to waive the two million dollar statutory limits. EIDLs cannot be used to refinance long term debt, though. They are working capital loans to get the business through the disaster recovery period.
If the Secretary of Agriculture designates an area an agricultural disaster, SBA automatically activates its Economic Injury Disaster Loan program. Once again, these are working capital loans to help small businesses, small agricultural cooperatives, meet their ordinary and necessary financial obligations that cannot be met. These loans are available in the primary and contiguous counties.
Generally drought, wildfires, flooding, snow storms and high winds will cause an agricultural disaster that the SBA will activate the EIDL program. There is not any actual property damage either.
The Secretary of Commerce can declare a fishery resource disaster under Sec. 308 (b) of the Inter-jurisdictional Fisheries Act and SBA can activate its Economic Injury Disaster Loan program. Once again these are working capital loans to help Small Businesses, Small Agricultural Cooperatives, Small Aquaculture Enterprises and most Private, Non-profit organizations.
A good example of the Secretary of Commerce fishery disaster would be in 2008 and 2010 when federal authorities declared the closure of the salmon fishing season in certain areas of the West Coast. Sport and commercial fishing boats, processors, bait shops and other related businesses would need working capital to stay in business until the resumption of salmon fishing.
SBA had lots of public information officers and field operations going out in these areas in places where the docks and salmon fishermen would come in, handing out fact sheets to restaurants, bait shops, and the processors in attempt to help them to get working capital to remain in business.
Here is a chart we have made about the EIDL's. Once again you can see the borrowersthe small business, the agricultural cooperatives, the aquaculture, and most private non-profit organizations. EIDL's help them meet their ordinary and necessary financial obligations that cannot be met as a result of the disaster.
Two million dollars is the maximum amount unless it is a major source of employment business. The rate is a very low four percent. It is available to entities and their owners who cannot provide for their own recovery. Once again, they pay the fixed debts, the payroll, the accounts payable and other business expenses on a day-to-day basis that working capital would generally be used for.
The following types of businesses are not available for the EIDLs: A speculation business, which is financing real property being held for investment or day trading on investments. Pyramid schemes are not available either, which is any scheme where a person would bring in other people for money.
Hobby businesses, such as a basement jewelry studio, a jazz band for hire, or a person who refinishes antique chairs for friends and neighbors. Often a persons hobby or sideline business is a labor of love instead of rather than just a reliable source of income, which the SBA would look at.
SBAs disaster loans are a critical source of economic stimulation in disaster ravaged communities. They help spur employment and stabilize tax bases. My colleague Kathy Cook will now go over the SBA disaster assistance program and how the loans help disaster recovery.
Kathy Cook: SBA strives to be a good steward of the taxpayers dollars. By providing disaster assistance in the form of low-interest loans, SBA helps reduce federal disaster cost compared to other forms of assistance such as grants which are usually provided by FEMA or state or local agencies.
Also, trying to be a good steward of the taxpayers dollars and kind of a guardian for the applicant, as the result of loan approval we require that borrowers maintain appropriate hazard and flood insurance, thus reducing the need for future federal assistance.
In other words, if you applied for a disaster loan as a result of flooding part of the condition of getting the loan would be that you would be required to get flood insurance and maintain it for the life of the loan, therefore reducing the possibility or need for you to borrow from us in the future.
Basically there are three criteria to get loan approval:
One is eligibility. The damaged property has to be in a declared county.
Credit history is important. The applicants must have a credit history acceptable or satisfactory to the Small Business Administration.
Repayment abilitythe applicant must show the ability to repay the loan. Generally, what SBA does is take a look at the historical income of the individual or business, look at the existing debts, and if there are funds left over for an additional loan payment, that is how we show repayment ability.
Many people wonder how we determine the loan amount. The loan amount is based on, if it is for physical damage, inspection of the property. We come up with an amount of the damaged losses and then we take into consideration any compensation received by insurance, grants, sale of damaged property that are available for replacement or repairs. The difference between the amount of the damages and any other recoveries from insurance, grants and other sources are reduced from the eligibility and the result is the loan amount.
It is not necessary for the individual or business to borrow the full amount of the loan. They have the option of borrowing as much as we offer.
We work to make the loans affordable. Many people say they dont want to go into debt as a result of the disaster but in many cases there are no grants available, such as for businesses. In a lot of cases where we have Presidential declarations homeowners and renters might not qualify for grants that take care of the full amount of their losses.
The law gives SBA several powerful tools to make disaster loans affordable. One is through our low interest rates (and these are fixed interest rates for the life of the loan), our long terms, which can be up to 30 years, and the ability to refinance in some cases.
This is a chart that shows our disaster home loans. As Amy said at the beginning of the presentation, SBA disaster assistance programs are not just for businesses. We can lend to homeowners, renters and businesses of all sizes.
Homeowners are eligible to apply for up to 200,000 dollars to repair and replace damages to their property, their real property. Homeowners and renters can apply for up to 40,000 dollars to repair and replace their personal property or content losses. This also includes damage to vehicles.
To help homeowners in the future protect their property from the same type of damage that occurred in the current disaster from occurring again, SBA can increase the loan by twenty percent of the verified loss (that is the amount of the inspection totals of the damage) just for mitigation or preventative measures.
An example would be if your home was flooded and you said that if you could just elevate the house and if we did that, the next time the flood comes it would not have gotten into the first floor. That would be an example of where the SBA is helping the individual improve the property for the purpose of sparing it from future damages of the same type of disaster they applied under.
The interest rates: There are two sets of interest rates on each type of loan. There is a low rate and a market rate. Currently the low rate is under two percent but it will never exceed four percent. These are simple interest loans. The market rate will never exceed eight percent.
So homeowners and renters, although we are the Small "Business" Administration, have the opportunity to apply to the SBA for disaster assistance to repair and replace their damaged property.
We also help small businesses, but where we are unique is that we are not limited to just helping small businesses with their physical loss, the damage or repair needs. We can help businesses of all sizes including private non-profit organizations. Here we can offer up to two million dollars for repairing and replacing the real estate. Thats the building, landscaping, lease hold improvements, equipment, furniture, inventory.
And we also, as a guardian of the business and helping them in the future, can offer up to twenty percent more of the verified loss for protective improvement. If they want to do something to the property that would help prevent the same kind of damage from occurring again, then they would give a proposal to the SBA and we would evaluate it.
An example of another protective improvement would be hurricane shutters in a hurricane prone area such as Florida. The rates on business loans: the low rate does not exceed four percent and the market rate does not exceed eight percent. Currently the low rate for non-profit organizations is at three percent and the low rate for businesses of all sizes for physical damages is four percent.
Generally speaking, when there is a Presidential disaster declaration there is a sixty day window from the day of the declaration in which applicants have to apply for their physical losses. This would be for homeowners, renters and businesses of all sizes, including non-profit organizations.
For small businesses, small agricultural cooperatives, aquaculture enterprises, and most non-profits who are applying for economic injury (these are to keep the business in business loans) the deadline extends to nine months. A lot of people wonder why it gets so much longer.
Very often a business does not realize their economic impactthat is, their ability to pay the normal operating expenses that they could have paidif they are not physically damaged, they dont realize how impactful the communitys damage is on them. They begin to use their reserves and their own resources to take care of and meet the ordinary needs, to make payments on payroll, inventory, equipment and so forth.
However, several months down the road they might find that people are not moving back into the community. They may find that their suppliers are not in business and they have other issues that are causing their sales to remain below what the customary amounts are. They need the Economic Injury Disaster Loan, so the window is longer. That means nine months.
In Small Business Administration we have several types of loan programs but the disaster loan program is more unique from the traditional small business loans because the small business loans that you normally think about to start a business, consolidate debt, or expand, are from private banks and SBA guarantees them; however, disaster loans are direct from the federal government.
Also, even though we are the "Small" Business Administration, with physical losses we are able to lend to businesses of all sizes for their physical damage, for funds to repair and replace damaged contents, and real property. We can lend to non-profit organizations such as charities, churches and private schools. They are all eligible.
In some cases SBA can refinance. One of the criteria is for substantially disaster damaged homes and businesses, SBA may refinance recorded liens on real estate and/or machinery or equipment. Eligible liens for refinancing include home loans for real estate only, and business loans for real estate and chattel.
In parentheses it says "UCC filings." UCC is Universal Commercial Code. These are security interest instruments where a lien is placed against non-real property. For instance if you have a car or vehicle, when you buy it from the car company they place a lien on the vehicle. That is a UCC filing.
What SBA does is in cases where refinancing is eligible, we look to see if we can refinance certain debts, mainly on real property for the business or homeowner, to help make the loan affordable. However we cannot consider whether or not refinancing is an option until insurance settlements are final. SBA cannot refinance existing federal loans. They are not eligible for refinancing. In other words, the government cannot refinance other government debts.
As a guardian of the taxpayers dollars, SBA takes collateral when it is available. Physical loans (those are the ones to repair and replace) SBA will take collateral when the loan is over 14,000 dollars.
The equity in the collateral is not going to stop us from being able to make someone a loan as it would in a traditional lender. If the individual is applying for damage to their home and they just bought their home and dont have any equity, SBA can still take that primary residence as collateral and will if the loan is over 14,000 dollars. If we are making an EIDL, the requirement for collateral to secure the loan is if the loan is over 5,000 dollars.
SBA will not decline a loan for the lack of collateral, but SBA requires that borrowers pledge the best available collateral. What that means is if we choose to take the damaged property as collateral, and then the borrower says, "Wait a minute, I have land in another area and would prefer you secure your loan with that," we would consider it. But if that does not cover the loan, and is not what is best for the agency, and is not sufficient to cover the amount of the loan, we will work with the borrower, the individual, so that we have the best collateral available.
SBA requires borrowers to obtain and maintain appropriate insurance as a condition of most loans. Hazard insurance is required on all secured loans. For those loans to businesses and individuals over 14,000 dollars, SBA is going to require that they have hazard insurance.
Hazard insurance is typical insurance that a homeowner or business would have that covers losses for fire, theft, tornados in some cases, this is to protect not only the collateral, but also to protect the property owner from having to borrow for future damages.
Flood insurance is very important. It is a separate policy. It is required for any loan where the property is in a Special Flood Hazard Area and for properties that are damaged in a flood disaster. Special Flood Hazard Area: that term might be unfamiliar to you, but what that is essentially is a hundred year flood plain.
What we want to deal with by requiring these types of insurance is want to help protect the individual applicant from having to borrow in the future when they have damage and also protect the taxpayers dollars and the collateral by making sure it is insured for future losses.
The most exciting thing is that we can provide several avenues for applicants to apply. One of the methods that is shown in this picture on the left is electronically. We have the electronic loan application, which I will talk about a little more, and very often SBA has disaster centers in close proximity to a disaster area. They may be with FEMA or they may be just SBA on their own depending on the type of disaster declaration, or we can meet with individuals and businesses face-to-face and help them navigate through the process.
There are three ways to apply:
The first one is online. SBA has a secure website and the individual or business owner can go on the website and it is relatively easy with inputting name, phone number, contact information, emails and phone numbers. That can start the application process.
Or they may elect to come in person and meet with the SBA customer service representative at a Disaster Recovery Center, which is generally in the declared area.
They can apply by mail. We have paper loan applications that can be mailed to the applicant. Once they are submitted with the filing requirements necessary to accept the application we can begin processing.
To apply online you can complete the loan application by clicking on this hyperlink. Essentially if you go to SBAs website at www.sba.gov you will find a panel that says "Disaster Recovery Loans." Once you click that section, it will take you to our web pages about our disaster program which I encourage you to look through and you will find an indicator of how to apply.
If you choose to apply electronically, which a lot of people want to apply as quickly as possible and want to get on the computer and do it at their leisure after work, they dont want to take off time to meet with us personally, then this is the avenue for you.
However, some people prefer to come to a disaster center for personal service. A disaster center is generally advertised in newspapers, TV, radio, fliersthe best we can. It is where individuals and businesses can come and meet with a SBA customer service representative face-to-face.
We have different disaster centers depending on the type of disaster and the type of disaster declaration. SBA can be with FEMA or other state and federal agencies at a Disaster Recovery Center. These are facilities that are temporary and are stood up at the time of a disaster, generally in close proximity to the area ,so people can come in and meet with federal and state representatives face-to-face and have their questions answered, and in the case of SBA, apply for a disaster loan.
When it is not a presidentially declared disaster, its SBAs disaster declaration, then we have Disaster Loan Outreach Centers in facilities in close proximity to the disaster area. We offer the same services: face-to-face with applicants, the ability to help you if you want to apply online, if you want to fill out a paper loan application, or if you just have questions regarding the application process.
In the case of disaster declarations where we have a large business population that has been impacted, SBA may elect to set up a Business Recovery Center. SBA specialists will be there to help the business owner navigate through the system, issue applications, answer questions, and in a lot of cases, we are available to help close some loans.
If you elect to complete a paper loan application, you can download the application from our website www.sba.gov or you can call us on our customer service line and get an application, or pick one up at the Disaster Loan Outreach Center. The applications are processed in our office in Fort Worth and provided for you here is the address to that center.
Once we get an application we review it for completeness. If we have the filing requirements, then the loan is accepted.
In most cases we are going to verify the physical losses for the homeowner or renter or business. We wont just show up on the property. We will call the individual or business owner prior to making an inspection, set up an appointment time, and then we will go onsite to make the inspection.
Our construction analysts estimate the cost of the repairs and replacements that are needed to restore the property to its pre-disaster condition. Next, the loan is processed for determination of approval by a loan officer. We perform a financial analysis and determine the loan rates and terms.
If the loan is approved we will prepare and issue legal documents. The borrower, who is the previously known applicanthomeowner, renter or businessexecutes the loan closing documents and returns them to SBA. It is only at that point, when the individual or business returns the loan closing documents to SBA that they will be eligible for a disbursement.
SBA disburses loan funds to the borrower as they are needed to complete repairs. Generally speaking, disbursements are in installments. Normally, if SBA has all the documents necessary for initial disbursement, we would issue the first check up to the unsecured limit. For physical damage loans, to repair and replace property, we would issue an initial check for 14,000 dollars. For EIDL, for working capital, the first check is generally 5,000 dollars.
We ask the borrower to submit receipts showing where they have repaired the property or replaced the property or made payments on their working capital needs, and then we would be able to issue subsequent funds.
We work with each individual on what their subsequent needs are. For instance, if you are repairing your home and your contractor says he needs a draw of 20,000 dollars and itemizes what it is for, then SBAs attorneys and paralegals will work the file and work with you (you being the individual or business owner) and the contractor to get the amount of funds you need. Then you send in your receipts so we can make sure the property is being repaired properly. Then we can issue another disbursement.
SBA has a Customer Service Center located in Buffalo, NY where our customer service representatives are available through phone and email. They can provide assistance on any facet of disaster assistance. If you are seeking information on whether or not we have gotten a declaration for an area, questions about the process, if you have any issues once you are trying to apply online, our customer service representatives are available to help you.
We have a multitude of information on our website at: www.sba.gov/disaster. If you prefer to talk to somebody, call 800-659-2955. For the deaf and hearing impaired the number is 800-877-8339. If you prefer to email us your question, the address is firstname.lastname@example.org.
SBA has two primary offices that are responsible for the outreach to disaster areas. One is called Field Operations Center West. They are located in Sacramento, California. The other is called Field Operations Center East. They are located in Atlanta, Georgia.
Individual Field Operations Specialists are deployed to disasters from these offices. They work with FEMA, the state, local government offices, and individuals and business owners in disseminating program information. The Field Operation Specialists also are the ones who maintain the Disaster Recovery Centers.
They will be interfacing with applicantshomeowners, renters, businesses of all sizes including non-profitsand helping them navigate through the loan application process. They issue applications. They deal with initial intake. They help people if they want to go on line and apply through our electronic loan application. They answer program questions, essentially providing face-to-face service.
We also have staff in our communications department. What they are primarily responsible for is the public information portion, to advertise that we have a disaster declaration through issuing press releases, meeting with media, TV stations and radio, and putting things on our Internet site.
We also attend and participate in town hall meetings. We do Congressional briefings. We work with FEMA in Presidential declarations to ensure that we get to as many points as we can and as many communities as we can because our goal is to help communities understand that SBAs disaster loans are available for not just businesses, but homeowners, renters and businesses of all sizes.
First of all, to tell them the process of how to apply, which in a Presidential declaration is to apply through FEMA, and once FEMA does their initial registration, if you are referred to the SBA, you have the option to apply through our online application, or in person at a Disaster Recovery Center, or by mail with a paper application.
We want to help you through the process of getting your loan closing documents in, and what is needed for further disbursement. Disasters happen to people at inappropriate times but through learning about SBAs disaster assistance program, hopefully we can help individuals and businesses, and by helping them, it helps the community recover sooner.
The point of having disaster assistance is to help people with their uninsured losses and with losses that are not compensated by insurance or other resources. Many times we find that people do not want to apply for loans because they think they cannot afford it. I want to encourage you, whether you are applying or you are helping your community, encourage everyonehomeowners, renters, and businesses of all sizesto go through the entire process.
If it is a Presidential declaration and SBA is unable to help them with a disaster loan, in many cases we can refer them to FEMA for assistance. That assistance may be in the form of a grant. In some states there are state grant programs that we may be able to refer individuals or businesses to if they have them.
If they dont take the time to apply for the assistance that is available through Small Business Administration, a lot of times that would prohibit them from being considered for other resources. Some non-profit organizations will not help individuals until they have gone through the process of applying with SBA to see if we can help them.
Again, our loan terms are very generous. We can stretch the loans out as far as thirty years if necessary. Applicants shouldnt be bashful about asking questions all through the process because we are here to help. That is why we have the face-to-face opportunities at Disaster Recovery Centers and have our customer service representatives at our Customer Service Center, at 1-800-659-2955, that can help you navigate through the process.
If you can help us help those to recover, make sure they register for disaster assistance. If they are referred to SBA, that they take the time to complete an application whether it is online or a paper copy. Make sure they contact us if they have any questions instead of thinking it is too hard, I cant do it or I dont understand.
With that I will turn it back over to Amy.
Amy Sebring: Thank you very much to both of you. That was very good information and a really good summary where we dont have to dig and find it out ourselves. In particular I was not aware of the agency declaration, so that was also good information.
[Audience Questions & Answers]
Carl Rebstock: Kathy, what's meant by there being two interest rates: low and market? Wouldn't only one be charged to the recipient?
Kathy Cook: There will only be one interest rate established for any one borrower. However when SBA is processing a loan, by Congress, we have two interest rates. We have to establish whether or not the individual has the capacity to borrow without undue hardship. Using several tools, one of them being the income compared to the debt, we look at the amount of uncompensated losses, which would be the damaged amount, and other issues and determine the interest rate.
That interest rate is set for the life of the loan. When you get a disaster declaration and look on our website, you may see there is a fact sheet with different rates published. You will see the low rate and the market rate. For each individual and business we go through an analysis to get an interest rate.
A majority of people are at the lower rate, but that determination can only be made at the time of processing by the loan officer. That rate is again a simple interest rate which means the interest is only calculated on the unpaid principle. We also have built in a deferment so that the individual doesnt begin paying right away once they sign the documents to get the loan.
We allow at least four months from the date of the notenot the date the project is finished or the date they get the last dollarbut the date of the note they signed to make repairs and replacements before they have to start making payments.
We have several flexible terms that allow us to make loans affordable. We hope that hearing there are two different rates does not prevent somebody from applying because, again, it is a determination based on several factors and can only be made by the loan officer having all the facts, data and information in their hands at the time of processing.
Amy Sebring: In a nutshell, youre saying that some folks qualify for the low rate and others for the market rate?
Kathy Cook: Thats it.
Carl Rebstock: Why do these SBA services exist at all? Aren't the FEMA IA (Individual Assistance) or PA (Public Assistance) services intended to be comprehensive? Conversely, do FEMA recovery specialists know when to refer an applicant to the SBA for more appropriate assistance?
Kevin Wynne: FEMA does not provide assistance to businesses in a presidentially declared disaster. We encourage everyone who is in a primary county of a presidentially declared disaster to register with FEMA, then get an SBA loan applicationhomeowners, renters and businessesfill out that SBA application, and if we cant approve you for the loan, we will send you back over to FEMA for other needs assistance programs.
FEMA and SBA work together jointly under the Stafford Disaster Act in assisting homeowner, renters and businesses in declared disaster areas that cant manage the recovery themselves. If the local and state cant do it, then well ask the federal government for help. That is where FEMA and SBA come in (and other agencies) and assists those homeowners, renters and businesses.
FEMA does not provide full recovery. They only provide that safe and sanitary home, the short-term recovery. SBA is the long-term recovery of individuals, homeowners, renters and businesses in declared disaster areas.
Isabel McCurdy: What is the percentage of rejection for loan applications?
Kathy Cook: The amount of loans that are declined, the percentages depend on each particular disaster declaration. I do not have any one particular amount of statistics. What I will say there are three criteria for approval: one is eligibility,. one is satisfactory credit, and the other is repayment ability.
If for some reason we are unable to approve somebodylets say somebody has defaulted on a federal debt and is not repayingthat would be a reason for a decline. We always allow people the opportunity for reconsideration. In fact, we allow up to six months to ask for reconsideration.
If they can provide information that would overcome our reason for a decline, we can reconsider it and possibly have an approval. Even if we deny the loan request a second time, we give them a chance for final appeal. We strive and try to make every approval that we can. However we are responsible to the taxpayer to insure that we can provide good loan judgment.
In some cases when we cant approve a loan, (for instance a homeowner who cant afford it and it is a presidentially declared disaster), if they cant afford a loan and we show that, we can send them back to FEMA for consideration for additional grants. We are not trying to burden people with loans that cant afford it; however, we are giving them an opportunity for recovery that might not otherwise be available.
Avagene Moore: Kathy, thanks to you and Kevin for the fine presentation. My question is about the options for applying. Is one method faster than another? I would think online might be the fastest way. Certainly mailing an application would take longer to reach SBA.
Amy Sebring: And if I may tag onto that question, what is the typical amount of time it takes to process an application of this type?
Kathy Cook: The electronic loan application option is faster to process because the data is entered into the system relatively quickly for a homeowner, renter, and the initial information for a business, but there are people that dont feel comfortable putting their information on a computer so they elect to apply with a paper copy.
Having said that, everything is processed in turn. People dont have to wait until they get an application mailed to them because we also have the option of going to the Disaster Recovery Center and getting the application there. They can complete it in front of the customer service representative who will guide them through it. They make sure it is complete. We can intake it there and send it to our processing office. Or, we have the ability to download it from our website. All of those options depend on the individual and what they are comfortable doing.
In the height of our disasters last year I am proud to say the average processing time was about ten days. It just depends on the volume of applications we have and the amount of disasters we have. We are hoping people would choose to apply through our online resources and get their information in as quickly as possible. We hope to continue to improve on that.
Our mandate for home loans and business loans is a little different and business owners may find it is a little more difficult to apply online because we ask for financial information such as income statements, profit and loss statements, and personal financial statements. They may elect to apply with a paper copy because they have all that information already in their computer system or their accountant has it.
These are options. Everything is processed on a first-come, first-served basis. Once we have the necessary filing requirements regardless of how it comes inelectronically or on paperwe are going to do our best to make a decision as quickly as possible.
Amy Sebring: Kevin, as far as the Western Operations Center, (and I am sure it is the same for Eastern Center) do I understand correctly that the inspectors actually work out of that office? My question is if you have a major disaster with lots of applications, do you have capacity for surging folks in the field that can do those inspections?
Kevin Wynne: Yes, we do. We have reservists of Preliminary Damage Assessment loss verifiers on 48 hour standby that can be put into any disaster area and start the Preliminary Damage Assessment. We also have loan officers on call within 48 hours of a major disaster or surge. All of this was instigated after Hurricane Katrina where that disaster that went up to about 250,000 applications. SBA has personnel on standby ready to handle that in an attempt to get disaster assistance to homeowners, businesses and renters from a major disaster.
We also have Public Information Officers that can be on the ground within 24 hours to let folks know in those areas where the Disaster Recovery Centers are, how to apply with the SBA, and get the recovery process going as fast as possible.
Amy Sebring: Do the East and West back each other up?
Kevin Wynne: Yes we do. I have worked in the East and Kathy has worked in the West as well.
We have loss verifiers around the country that can be onsite within 24 hours of most major disasters. I was actually in Branson, Missouri and one of the guys that was doing the loss verification in March of this year after the tornado lived about 25 miles from Branson and was there within 24 hours.
Amy Sebring: Fantastic. Time to wrap for today. On behalf of Avagene, myself, and our participants, thank you both for an excellent presentation. Really good information and we do thank you very much Kevin and Kathy for sharing this information with us.
Our next program is planned for July 11th so please plan to join us then. Thanks to everyone for participating today and Avagene and I wish you a safe and happy Fourth of July holiday with your family and friends! Have a great afternoon everyone. We are adjourned.