SBA changes interest, limits and restrictions for disaster loans

The U.S. Small Business Administration agency has made changes to increase support to disaster survivors and small businesses needing relief following a federally declared disaster. The rule is effective for all disasters declared on or after July 31.

“The Biden-Harris Administration has prioritized maximizing resources for disaster survivors so that they can successfully recover and build resilience to the effects of climate change that have led to more frequent and costly natural disasters,” said Administrator Casillas Guzman. “The SBA ’ s disaster loan program rule modifications will ensure more flexible and affordable disaster loans are available for small businesses, nonprofits, renters, and homeowners that will allow them to focus on recovering quickly so their communities can survive and thrive again.”

“For the first time in nearly 30 years, accounting for decades of inflation and rising construction costs, SBA is more than doubling the caps for its home disaster loan program. Increasing the loan limits ensures that communities across America have access to sufficient funding to help them rebuild homes, replace personal property, and reopen businesses when disasters strike,” said Bailey DeVries, Associate Administrator for Investment and Innovation and Acting Associate Administrator for Capital Access.

The SBA said it is also expanding assistance to other types of hazards beyond the declared disaster event to include hurricanes, floods, tornadoes, wildfires, earthquakes, and more.

“Property owners can use their disaster loan funds to rebuild stronger and more resilient against multiple types of hazards and not just against a single threat,” said agency officials.

The SBA waived the interest rate for the first year and extend the initial payment deferment period automatically to 12 months for disasters declared on or after September 21, 2022, through September 30, 2023. That change is now permanent. The SBA will waive interest and payments for the first year for all disaster loans beyond September 30, 2023.

Key changes being announced by the SBA include:

• Increase Loan Limits for Primary Residence: $200,000 to $500,000 for real estate repair or replacement, contractor malfeasance, refinancing, and mitigation for home disaster loans.

• Increase Loan Limits for Personal Property: $40,000 to $100,000 for replacement of clothing, furniture, appliances, automobiles, and more for home disaster loans.

  • Remove Administrative Limit on Landscaping: Landscaping will be limited to the overall real estate repair limit and not capped at $5,000.
  • Increase the Initial Payment Deferral Period: Extending the first payment deferment period from five to 12 months for all disaster loans. This change removes the burden for disaster survivors to begin making payments on their disaster loans before communities rebuild and recover.
  • No Interest Accrual for the First 12 Months: Waives interest accrual for the first year from the date of the initial disbursement for all disaster loans. This change ensures the payment deferral offers a true reprieve as all loans will not accrue interest during deferment.
  • Mitigation Disaster Loans: Eliminates a restriction on property owners to only use disaster loan funds to mitigate a “similar” disaster event that caused damage to their home or business.
  • Collateral Requirements: SBA is clarifying collateral requirements in the disaster loan program under which blanket liens on business assets that provide no liquidity in the event of default will not be required.
  • Reduce Documents Required to Request Reconsideration: Removes the requirement that businesses submit financial statements with every reconsideration or appeal request for a previously declined application. Currently, SBA requires business loan applicants to provide current financial statements, even if their applications were not declined for lack of repayment ability.
  • Expand Eligibility to Consumer or Marketing Cooperatives: This change aligns disaster lending with SBA’s 7(a) and 504 business loan programs and allows these cooperatives to apply for the Economic Injury Disaster Loan (EIDL) and Military Reservist Economic Injury Disaster Loan (MREIDL) programs.