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Homeowners and renters, especially
those in Southeast and Gulf Coast states, know insurance can cover
a lot of the damage caused by hurricanes and other natural disasters,
but you might be surprised to learn substantial aid is available
through an unlikely source: the U.S. Small Business Administration.
The SBA offers low-interest loans for property damage,
and you don't have to be a small business owner to get it.
"That seems to confuse people because of the
name of the agency," admits Carol Chastang, a spokeswoman
for the SBA. "But it's a mandate from Congress 51 years ago
that made it possible for us to make loans to homeowners and renters,
as well as businesses."
Approximately one of every five Florida homes has
been damaged by a hurricane this year, according to the Insurance
Information Institute. And hurricanes aren't the only natural disaster
that can affect your home. Wildfires, tornadoes and earthquakes
-- not to mention the new threat of terrorist attacks -- all give
homeowners something to consider, if not all-out worry about.
Anyone who lives in a declared disaster area can apply
for the loans, which currently have interest rates as low as 3.187
percent, but vary depending on your ability to obtain funds elsewhere.
If you can obtain credit elsewhere, the rate is based
on the cost of money to the U.S. government, but will not be more
than 8 percent. If you cannot get the money elsewhere, the rate
is cut in half, and not more than 4 percent per year. The maximum
loan term for homeowners and renters is for 30 years, but can vary
depending on your ability to repay.
The maximum amount that homeowners can borrow is $200,000
to make repairs on primary residences only, meaning owners of vacation
homes need not apply. However, homeowners can apply for as much
as $40,000 more to cover the repair or replacement of items inside
of the home such as "furniture, appliances, clothing and cars
-- anything that's not fully covered by insurance that was destroyed
or damaged," Chastang says.
Renters too, can get in on the action, being eligible
to receive loans of up to $40,000 to cover items damaged and destroyed
in the home.
But before you go contacting the SBA for funds to
fix up your damaged home, you must first contact the Federal Emergency
Management Agency.
FEMA is the point agency for federal aid during emergencies,
and a FEMA representative will provide you with an application packet
for an SBA home or property loan, says Barbara J. Ellis, a spokeswoman
for FEMA.
"The SBA then becomes the point agency once [homeowners]
complete that packet," she says.
To apply, you must submit an application that includes
a list of items that were damaged or destroyed, along with the repair
or replacement cost of each. The application also gives the Internal
Revenue Service permission to release information from your last
two tax returns to the SBA. To bolster your chances of being approved
for a loan, you can send evidence of damage such as pictures of
a blown-off roof.
Once your claim has been made, you can expect to be
visited by an SBA representative who will check to make sure that
the claim is valid.
The agency tends to process the claim within 10 days,
Chastang says. You should know whether you will be receiving funds
in about 18 days.
Loans in excess of $10,000 must be secured, often
via a first or second mortgage on the damaged home, so the SBA will
need information from you to close the deal. Once that is completed,
you'll receive money in installments to repair or replace items
in your home.
While SBA home and property loans are designed to
augment insurance, they are not designed to replace it. The Insurance
Information Institute expects to pay out more than $15 billion in
insurance claims as a direct result of Hurricanes Charley, Frances,
Ivan and Jeanne.
But for homeowners who don't have enough coverage
to address all of their damages, the SBA loans will pick up the
slack.
Once the SBA determines how much your damages are
worth, it will subtract any monies that have already been paid out
by insurance companies. So, for example, if your damages will cost
$100,000 to repair and your insurance will pay for $80,000, then
the SBA loan would only cover the additional $20,000.
If you're having a problem agreeing with your insurance
company on a settlement, don't despair. You can apply for an SBA
home and property loan for the entire amount of your damages. Should
you come to an agreement with your insurance company at a later
time, the money from the insurance company could then be applied
to the SBA loan.
Even if you're not having problems with your insurance
company, you may find yourself waiting for a long time for your
claim to be processed.
For example, in the case of the recent Florida hurricane
damage, "The unprecedented challenges created by the multiple
hurricanes understandably will strain resources and cause some delays
that would not normally occur," according to Robert Hartwig,
the chief economist for the Insurance Information Institute.
The SBA does not want homeowners to wait for a lengthy
insurance-claim process to end before they apply. If you're not
sure how much you'll qualify for via insurance, again, you can apply
for a loan up to the limit and pay the SBA once your insurance monies
come in.
Once you're approved for a loan, you can't change
your mind and use the funds for your son's college tuition or some
other expense. To ensure that funds are spent as they were intended
to be, the SBA requires that loan recipients keep all receipts and
records of repairs and replacements for three years. The penalty
for misusing disaster loan funds is the immediate payment of one
and a half times the amount of the loan.
While the SBA might not be the most well-known resource
when it comes to repairing damaged homes after an emergency, it
generally awards $800 million to $900 million in loans per year
as a result of national emergencies.
"There's a sizable population in this country
that relies on these low-interest loans to rebuild after a disaster,"
Chastang says.
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