a natural disaster ravages your small business and you don't
have enough savings to pull you through, insurance and loans
A business owner should make
insurance the first line of defense against disaster. 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.
Keep in mind that most general
casualty policies don't cover flood damage, and that many
require riders to cover windstorm, sewer backup or earthquakes.
Some small-business owners don't buy insurance
or don't have enough. Lots of businesses that were flooded
in eastern North Carolina belong to this category. In Tarboro,
shops along Main Street didn't have flood coverage because
the place hadn't been inundated in its 200-plus year history.
To get the money to remain in operation,
most of them applied for loans, from banks and from the Small
The SBA offers two kinds of disaster loans
to small businesses, each with its own limitations and requirements:
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,
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.
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.
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
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.
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
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
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, and the
length of the term depends on your ability to pay.
-- Posted: Nov. 18, 1999