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SBA disaster loans can help businesses bounce back

When a disaster ravages your small business and you don't have enough savings to pull you through, insurance and loans can help.

Insurance should be the first line of disaster defense. If you use personal property in the conduct of your business, such as your car or a home office, you can buy extra coverage or get a commercial policy.

But when the coverage is not enough, many businesses may be able to get loans, from banks and the Small Business Administration.

The SBA offers two kinds of disaster loans to small businesses, each with its own limitations and requirements: physical disaster business loans and economic injury business loans. A business can borrow up to $1.5 million from these loan programs combined.

Loans are available to nonprofit organizations, too.

One thing to keep in mind: The federal government gives away money to qualified homeowners and renters after disasters, but the feds don't give gifts of money to businesses. Only loans.

Physical disaster loans
The SBA makes these loans available to all businesses, big or small, in a federal disaster area. They are used to restore damaged property -- buildings, machinery, equipment, furniture and inventory -- to its pre-disaster condition.

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The interest rate and term of physical disaster loans vary, depending on whether you can qualify for a loan elsewhere. If you can't qualify for a loan elsewhere, the SBA can charge a maximum of 4 percent and lend you the money for up to 30 years. The length of the term depends on your ability to pay. The SBA sets the term by dividing the amount of the loan by how much you can afford to repay every month.

If you can obtain credit elsewhere, you can borrow from the SBA for up to three years, and the rate can't exceed 8 percent or the rate charged in the private market at the time of the disaster, whichever is less.

Economic injury loans
The SBA makes these loans available only to small businesses. "It's to help them continue to meet their expenses as if a disaster hadn't occurred," SBA spokesman W. Donald Waite says.

In other words, the loans help businesses meet operating expenses -- leases, wages, utility bills, accounts payable, payments on installment loans -- that they could have met had the disaster not occurred.

Your business doesn't have to suffer physical damage to get an SBA economic injury loan: the disaster could shut down a supplier of critical parts, stopping your manufacturing operation, or suppliers, employees and customers might not be able to get to your business because of toppled bridges or washed-out roads.

You can't get an economic injury loan from the SBA unless you have exhausted all private sources of credit.

The SBA requires the principals of a business to guarantee repayment personally. The interest rate cannot exceed 4 percent, and the maximum term is 30 years. The length of the term depends on your ability to pay.

-- Posted: Sept. 13, 2001

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