SBA clarifies disaster loan process

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In the March 19, 2008 edition of The Malibu Times, a news brief made erroneous references to disaster loans from the U.S. Small Business Administration (SBA). We want to clarify those points.

According to the story, Mayor Pro Tem Pamela Conley Ulich wrote in her report to the Malibu City Council: “SBA (Small Business Association) loans were offered with onerous conditions, such as requiring prior bank liens to subordinate and requiring repayment out of the first insurance dollar received. These conditions, in effect, rendered it nearly impossible for property owners to obtain SBA loans.”

We are not an “association” as stated in this story. We are an agency of the U. S. Government, the U. S. Small Business Administration. We make Federal disaster loans to homeowners, renters, businesses of all sizes and private, non-profit organizations.

More importantly are the two substantive misstatements. Recognizing that disaster loans are unplanned debt, SBA is not a collateral-based lender. We will subordinate to any existing lien position. Contrary to the story we do not require existing lenders to subordinate to our disaster loan. While collateral considerations are key to many other lenders, our loan decisions are based solely on repayment ability (cash flow), credit worthiness, and damage eligibility, not on SBA’s lien position.

The intent of SBA disaster loans is to cover losses that are not fully compensated by insurance or other recoveries, such as grants. Because SBA does not require that the disaster victim settle their insurance claim before applying to us, this often results in their disaster loan covering repair costs that also are covered by their insurance proceeds. SBA is required by law to prevent a duplication of benefits (so that taxpayer funds are only used for disaster repairs not covered by insurance or other sources). In order to provide speedy disaster relief and to avoid a duplication of benefits, SBA takes an assignment of insurance proceeds yet to be received. This enables us to determine if those insurance proceeds duplicate any portion of our disaster loan. If they do not, those funds are available to the disaster victim for repairs. If they duplicate our loan, those funds are used to reduce the amount of the outstanding disaster loan. This has the effect of giving the disaster victim an advance from SBA toward their pending insurance recovery, and the advance is repaid when the insurance funds are received. Contrary to the story, that is not requiring repayment of the loan from the first insurance dollar received.

To date for the 2007 southern California wildfires, SBA has approved 733 disaster loans for $86.8 million. In Malibu, SBA approved 34 loans for nearly $5.1 million.

Individuals and business owners may obtain additional information about SBA disaster loans by visiting SBA’s website at www.sba.gov/services/disasterassistance or by calling toll-free 800.659.2955. Hearing impaired individuals may call toll free 800.877.8339.

Alfred E. Judd

Director Field Operations Center – West