[Federal Register Volume 60, Number 226 (Friday, November 24, 1995)]
[Proposed Rules]
[Pages 58013-58020]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28450]
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[[Page 58014]]
SMALL BUSINESS ADMINISTRATION
13 CFR Part 123
Disaster Loan Program
AGENCY: Small Business Administration.
ACTION: Proposed rule.
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SUMMARY: In response to President Clinton's regulatory review
directive, the Small Business Administration has completed a page-by-
page and line-by-line review of its regulations. As a result, SBA is
proposing to clarify and streamline its regulations, revising or
eliminating any duplicative, outdated, inconsistent or confusing
provisions. This proposed rule would reorganize the entire regulation
123 covering the disaster loan program to make it more clear and easier
to use.
DATES: Comments must be submitted on or before December 26, 1995.
ADDRESSES: Written comments should be addressed to David R. Kohler,
Regulatory Reform Initiative Team Leader (123), Small Business
Administration, 409 Third Street, SW., Suite 13, Washington, DC 20416.
FOR FURTHER INFORMATION CONTACT: Bernard Kulik, Associate Administrator
for Disaster Assistance, at (202) 205-6734.
SUPPLEMENTARY INFORMATION: Part 123 of Chapter I, 13 CFR contains
policies governing the eligibility of disaster victims to obtain low-
cost loans to restore their damaged property to its pre-disaster
condition. This proposed rule would reorganize the entire Part 123 to
make it more clear and easier to use. It would eliminate references to
disasters which occurred years ago, and it would eliminate Subpart D--
Persian Gulf Troop Deployment Economic Injury Loans because the
authority for that loan program has expired. A conversion table
follows:
------------------------------------------------------------------------
Existing section Action New section
------------------------------------------------------------------------
123.1........................... Revise............ 123.1
123.2........................... Revise............ 123.101
123.3........................... Revise............ 123.3, 123.4,
123.5, 123.10,
123.101
123.4........................... Revise............ 123.5
123.5........................... Delete............ ..................
123.6........................... Revise............ 123.8
123.7........................... Revise............ 123.3
123.8........................... Delete............ ..................
123.9........................... Revise............ 123.101, 123.104,
123.105
123.10.......................... Delete............ ..................
123.11.......................... Revise............ 123.11
123.12.......................... Revise............ 123.13
123.13.......................... Revise............ 123.16, 123.104
123.14.......................... Revise............ 123.101
123.15.......................... Delete............ ..................
123.16.......................... Delete............ ..................
123.17.......................... Revise............ 123.201
123.18.......................... Revise............ 123.12
123.19.......................... Revise............ 123.9
123.20.......................... Delete............ ..................
123.21.......................... Revise............ 123.100, 123.200
123.22.......................... Revise............ 123.3
123.23.......................... Revise............ 123.3
123.24.......................... Revise............ 123.6, 123.7,
123.12, 123.101,
123.105, 123.106,
23.107, 123.201,
123.202
123.25.......................... Revise............ 123.15, 123.105
123.26.......................... Revise............ 123.202, 123.203
123.27.......................... Delete............ ..................
123.28.......................... Revise............ 123.202
123.29.......................... Delete............ ..................
123.40.......................... Delete............ ..................
123.41.......................... Revise............ 123.14, 123.301,
123.302, 123.303
123.60-69....................... Delete............ ..................
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Compliance With Executive Orders 12612, 12778, and 12866, the
Regulatory Flexibility Act (5.U.S.C. 601, et seq.), and the Paperwork
Reduction Act (44 U.S.C. Ch. 35)
SBA certifies that this rule does not have a significant economic
impact on a substantial number of small entities within the meaning of
Executive Order 12866, or the Regulatory Flexibility Act, 5 U.S.C. 601,
et seq.
For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA
certifies that this rule contains no new reporting or recordkeeping
requirements.
For purposes of Executive Order 12612, SBA certifies that this rule
has no federalism implications warranting preparation of the federalism
assessment.
For purposes of Executive Order 12778, SBA certifies that this rule
is drafted, to the extent practicable, in accordance with the standards
set forth in Section 2 of that Order.
List of Subjects in 13 CFR Part 123
Disaster assistance, Loan programs--business, Reporting and
recordkeeping requirements, Small businesses.
Accordingly, pursuant to the authority set forth in sections
5(b)(6), 7(b)(1), and 7(c)(6) of the Small Business Act, SBA hereby
proposes to revise Part 123 of Title 13 of the Code of Federal
Regulations to read as follows:
PART 123--DISASTER LOAN PROGRAM
Overview
Sec.
123.1 What do these rules cover?
123.2 What are disaster loans and disaster declarations?
123.3 How are disaster declarations made?
123.4 What is a disaster area and why is it important?
123.5 What kinds of loans are available?
123.6 What does SBA look for when considering a disaster loan
applicant?
123.7 Are there restrictions on how disaster loans can be used?
123.8 Does SBA charge any fees for obtaining a disaster loan?
123.9 What happens if I don't use loan proceeds for the intended
purpose?
123.10 What happens if I cannot use my insurance proceeds to make
repairs?
123.11 Does SBA require collateral for any of its disaster loans?
123.12 Are books and records required?
123.13 What happens if my loan application is denied?
123.14 Application of the Federal Debt Collection Procedures Act of
1990.
123.15 What if I change my mind?
123.16 Loan Administration and Servicing.
123.17 Application of Federal requirements relating to flood
insurance, environmental considerations, and other matters.
Home Disaster Loans
123.100 Am I eligible to apply for a home disaster loan?
123.101 When am I not eligible to apply for a home disaster loan?
123.102 What circumstances would justify my relocating?
123.103 What happens if I am forced to move from my home?
123.104 What interest rate will I pay on my home disaster loan?
123.105 How much can I borrow with a home disaster loan and what
limits apply on use of funds and repayment terms apply?
123.106 What is eligible refinancing?
123.107 What is mitigation?
Physical Disaster Business Loans
123.200 Am I eligible to apply for a physical disaster business
loan?
123.201 When am I not eligible to apply for a physical disaster
business loan?
123.202 How much can my business borrow with a physical disaster
business loan?
123.203 What interest rate will my business pay on a physical
disaster business loan and what are the repayment terms?
Economic Injury Disaster Loans
123.300 Is my business eligible to apply for an economic injury
disaster loan?
123.301 When would my business not be eligible to apply for an
economic injury disaster loan?
123.302 What is the interest rate on an economic injury disaster
loan?
123.303 How can my business spend my economic injury disaster loan?
[[Page 58015]]
Authority: 15 U.S.C. 634(b)(6), 636(b), 636(c) and 636(f); Pub.
L. 102-395, 106 Stat. 1828, 1864; and Pub. L. 103-75, 107 Stat. 739.
Overview
Sec. 123.1 What do these rules cover?
This part covers the disaster loan programs authorized under the
Small Business Act, 15 U.S.C. 636(b), (c), and (f). Since SBA cannot
predict the occurrence or magnitude of disasters, it reserves the right
to change these rules, without advance notice, by publishing interim
emergency regulations in the Federal Register.
Sec. 123.2 What are disaster loans and disaster declarations?
SBA offers low interest, fixed rate loans to disaster victims,
enabling them to repair or replace property damaged or destroyed in
declared disasters. It also offers such loans to affected small
businesses to help them recover from economic injury caused by such
disasters. Disaster declarations are official notices recognizing that
specific geographic areas have been damaged by floods and other acts of
nature, riots, civil disorders, or industrial accidents such as oil
spills. These disasters are sudden events which cause severe physical
damage, and do not include slower physical occurrences such as
shoreline erosion or gradual land settling. Sudden physical events that
cause substantial economic injury may be disasters even if they do not
cause physical damage to a victim's property. Past examples include
ocean conditions causing significant displacement (major ocean
currents) or closure (toxic algae blooms) of customary fishing waters,
as well as contamination of food or other products for human
consumption from unforeseeable and unintended events beyond the control
of the victims.
Sec. 123.3 How are disaster declarations made?
(a) There are four ways in which disaster declarations are issued
which make SBA disaster loans possible:
(1) The President declares a Major Disaster and authorizes Federal
assistance, including individual assistance (temporary housing and
Individual and Family Grant Assistance).
(2) SBA makes a physical disaster declaration, based on the
occurrence of at least a minimum amount of physical damage to
buildings, machinery, equipment, inventory, homes and other property.
Such damage usually must meet the following tests:
(i) In any county or other smaller political subdivision of a State
or U.S. possession, at least 25 homes or 25 businesses, or a
combination of at least 25 homes, businesses, or other eligible
institutions, must each sustain uninsured losses of 40 percent or more
of the estimated fair replacement value or pre-disaster fair market
value of the damaged property, whichever is lower; or
(ii) In any such political subdivision, at least three businesses
each sustain uninsured losses of 40 percent or more of the estimated
fair replacement value or pre-disaster fair market value of the damaged
property, whichever is lower, and, as a direct result of such physical
damage, 25 percent or more of the work force in their community would
be unemployed for at least 90 days; and
(iii) The Governor of the State in which the disaster occurred
submits a written request to SBA for a physical disaster declaration by
SBA (OMB Approval No. 3245-0121). This request should be delivered to
the SBA Disaster Area Office serving the region where the disaster
occurred within 60 days of the date of the disaster.
(3) SBA makes an economic injury disaster declaration in response
to a determination of a natural disaster by the Secretary of
Agriculture.
(4) SBA makes an economic injury declaration in reliance on a state
certification that at least 5 small business concerns in a disaster
area have suffered substantial economic injury as a result of the
disaster and are in need of financial assistance not otherwise
available on reasonable terms. The state certification must be signed
by the Governor, must specify the county or counties or other political
subdivisions in which the disaster occurred, and must be delivered
(with supporting documentation) to the servicing SBA Disaster Area
Office within 120 days of the disaster occurrence.
(b) SBA publishes notice of any disaster declaration in the Federal
Register. The published notice will identify the kinds of assistance
available, the date and nature of the disaster, and the deadline and
location for filing loan applications. SBA will accept applications
after the announced deadline only when SBA determines that the late
filing resulted from substantial causes essentially beyond the control
of the applicant. Additionally, SBA will use the local media to inform
potential loan applicants where to obtain loan applications and
otherwise to assist victims in applying for disaster loans.
Sec. 123.4 What is a disaster area and why is it important?
Each disaster declaration defines the geographical areas affected
by the disaster. Only those victims located in the declared disaster
area are eligible to apply for SBA disaster loans. When the President
declares a major disaster, the Federal Emergency Management Agency
defines the disaster area. In major disasters, economic injury disaster
loans may be made for victims in contiguous counties or other political
subdivisions. Disaster declarations issued by the Administrator of SBA
include contiguous counties for both physical and economic injury
assistance. Contiguous counties or other political subdivisions are
those land areas which abut the land area of the declared disaster area
without geographic separation other than by a minor body of water, not
to exceed one mile between the land areas of such counties.
Sec. 123.5 What kinds of loans are available?
SBA offers three kinds of disaster loans: physical disaster home
loans, physical disaster business loans, and economic injury business
loans. SBA makes these loans directly or in participation with a
financial institution. If a loan is made in participation with a
financial institution, SBA's share in that loan may not exceed 90
percent.
Sec. 123.6 What does SBA look for when considering a disaster loan
applicant?
There must be reasonable assurance that you can repay your loan out
of your personal or business cash flow, and you must have satisfactory
credit and character. SBA will not make a loan to you if repayment
depends upon the sale of collateral through foreclosure or any other
disposition of assets owned by you. SBA is prohibited by statute from
making a loan to you if you are engaged in the production or
distribution of any product or service that has been determined to be
obscene by a court.
Sec. 123.7 Are there restrictions on how disaster loans can be used?
You must use disaster loans to restore or replace your primary home
(including a mobile home used as primary residence) and your personal
or business property as nearly as possible to their condition before
the disaster occurred, and within certain limits, to protect damaged or
destroyed real property from possible future similar disasters.
Sec. 123.8 Does SBA charge any fees for obtaining a disaster loan?
SBA does not charge points, closing, or servicing fees on any
disaster loan.
[[Page 58016]]
You will be responsible for payment of any closing costs owed to third
parties, such as recording fees and title insurance premiums. Also, if
your loan is made in participation with a financial institution, SBA
will charge a guaranty fee to the financial institution and the
financial institution may recover the guaranty fee from you.
Sec. 123.9 What happens if I don't use loan proceeds for the intended
purpose?
(a) When SBA approves each loan application, it issues a loan
authorization which specifies the amount of the loan, repayment terms,
any collateral requirements, and the permitted use of loan proceeds. If
you wrongfully misapply these proceeds, you will be liable to SBA for
one and one-half times the proceeds disbursed to you as of the date SBA
learns of your wrongful misapplication. Wrongful misapplication means
the willful use of any loan proceeds without SBA approval contrary to
the loan authorization. If you fail to use loan proceeds for authorized
purposes for 60 days or more after receiving a loan disbursement check,
such non-use also is considered a wrongful misapplication of the
proceeds.
(b) If SBA learns that you may have misapplied your loan proceeds,
SBA will notify you at your last known address, by certified mail,
return receipt requested. You will be given at least 30 days to submit
to SBA evidence that you have not misapplied the loan proceeds or that
you have corrected any such misapplication. Any failure to respond in
time will be considered an admission that you misapplied the proceeds.
If SBA finds a wrongful misapplication, it will cancel any undisbursed
loan proceeds, call the loan, and begin collection measures to collect
your outstanding loan balance and the civil penalty. You may also face
criminal prosecution.
Sec. 123.10 What happens if I cannot use my insurance proceeds to make
repairs?
If you must pay insurance proceeds to the holder of a recorded lien
or encumbrance against your damaged property instead of using them to
make repairs, you may apply to SBA for the full amount needed to make
such repairs. If you voluntarily pay insurance proceeds to a recorded
lienholder, your loan eligibility is reduced by the amount of the
voluntary payment.
Sec. 123.11 Does SBA require collateral for any of its disaster loans?
Generally, SBA will not require that you pledge collateral to
secure a disaster home loan or a physical disaster business loan of
$10,000 or less, or an economic injury disaster loan of $5,000 or less.
For loans larger than these amounts, you will be required to provide
available collateral such as a lien on the damaged or replacement
property, a security interest in personal property, or both.
(a) Sometimes a borrower, including affiliates as defined in Part
121 of this chapter, will have more than one loan after a single
disaster. In deciding whether collateral is required, SBA will add up
all physical disaster loans to see if they exceed $10,000 and all
economic injury disaster loans to see if they exceed $5,000.
(b) SBA will not decline a loan if you lack a particular amount of
collateral as long as it is reasonably sure that you can repay your
loan. If you refuse to pledge available collateral when requested by
SBA, however, SBA may decline or cancel your loan.
Sec. 123.12 Are books and records required?
You must retain complete records of all transactions financed with
your SBA loan proceeds, including copies of all contracts and receipts,
for a period of 3 years after you receive your final disbursement of
loan proceeds. If you have a physical disaster business or economic
injury loan, you must also maintain current and accurate books of
account, including financial and operating statements, insurance
policies, and tax returns. You must retain applicable books and records
for 3 years after your loan matures including any extensions, or from
the date when your loan is paid in full, whichever occurs first. You
must make available to SBA or other authorized government personnel
upon request all such books and records for inspection, audit, and
reproduction during normal business hours and you must also permit SBA
and any participating financial institution to inspect and appraise
your assets. (OMB Approval No. 3245-0110.)
Sec. 123.13 What happens if my loan application is denied?
(a) If SBA denies your loan application, SBA will notify you in
writing and set forth the specific reasons for the denial. Any
applicant whose request for a loan is declined for reasons other than
not being a small business (size) has the right to present information
to overcome the reason or reasons for the denial and to request
reconsideration. (OMB Approval No. 3245-0122.)
(b) Any decline due to size can only be appealed as set forth in
Part 121 of this chapter.
(c) Any request for reconsideration must be in writing and must be
delivered to the SBA office that declined the original application
within six months of the date of the notice of the denial. After six
months, a new loan application is required.
(d) A written request for reconsideration must contain all
significant new information that you rely on to overcome SBA's denial
of your original loan application. Your request for reconsideration of
a business loan application must also be accompanied by current
business financial statements.
(e) If SBA declines your application a second time, you have the
right to appeal to the Area Director's Office. All appeals must be in
writing and be received by the office that processed and declined the
prior reconsideration within 30 days of the decline action. Your
request must state that you are appealing, and must contain your
written justification for believing that the decline action should be
reversed.
(f) The decision of the Area Director is final unless:
(1) The Area Director does not have authority to approve the
requested loan;
(2) The Area Director refers the matter to the Associate
Administrator for Disaster Assistance; or
(3) The Associate Administrator for Disaster Assistance, upon a
showing of special circumstances, requests the Area Director's office
to forward the matter to him or her for final consideration. Special
circumstances may include, but are not limited to, policy
considerations, alleged improper acts by SBA personnel or others in
processing the application, and conflicting policy interpretations
between two Area Offices.
Sec. 123.14 Application of the Federal Debt Collection Procedures Act
of 1990.
(a) Under the Federal Debt Collection Procedures Act of 1990 (28
U.S.C. 3201(e)), a debtor who owns property which is subject to an
outstanding judgment lien for a debt owed to the United States is
generally not eligible to receive physical and economic injury disaster
loans. The SBA Associate Administrator for Disaster Assistance, or
designee, may waive this restriction against receiving disaster loans
upon a demonstration of good cause. Good cause means a written
representation by you under oath which convinces SBA that:
(1) The declared disaster was a major contributing factor to the
delinquency which led to the judgment lien, regardless of when the
original debt was incurred; or
[[Page 58017]]
(2) The disaster directly prevented you from fulfilling the terms
of an agreement with SBA or any other Federal Government entity to
satisfy its pre-disaster judgment lien; in this situation, the judgment
creditor must certify to SBA that you were complying with the agreement
to satisfy the judgment lien when the disaster occurred; or
(3) Other circumstances exist which would justify a waiver.
(b) The waiver determination by the Associate Administrator for
Disaster Assistance, or designee, is a final, non-appealable decision.
The granting of a waiver does not include loan approval; a waiver
recipient must then follow normal loan application procedures.
Sec. 123.15 What if I change my mind?
If SBA required you to pledge collateral for your loan, you may
change your mind and rescind your loan pursuant to the Consumer Credit
Protection Act, 15 U.S.C. 1601, and Regulation Z of the Federal Reserve
Board, 12 CFR Part 226. Your note and any collateral documents signed
by you will be canceled upon your return of all loan proceeds and your
payment of any interest accrued.
Sec. 123.16 Loan Administration and Servicing.
(a) If you obtained your disaster loan from a participating lender,
that lender is responsible for closing and servicing your loan. If you
obtained your loan directly from SBA, your loan will be closed and
serviced by SBA. The SBA rules on servicing are found in part 120 of
this chapter.
(b) If you are unable to pay your SBA loan installments in a timely
manner for reasons substantially beyond your control, you may request
that SBA suspend your loan payments, extend your maturity, or both.
Sec. 123.17 Application of Federal requirements relating to flood
insurance, environmental considerations, and other matters.
As a condition of disbursement, you must be in compliance with
certain requirements relating to flood insurance, lead-based paint,
earthquake hazards, coastal barrier islands, and child support
obligations, as set forth in Secs. 120.170 through 120.175 of this
chapter.
Home Disaster Loans
Sec. 123.100 Am I eligible to apply for a home disaster loan?
(a) You are eligible to apply for a home disaster loan if you:
(1) Own and occupy your primary residence and have suffered a
physical loss to your primary residence, personal property, or both; or
(2) Do not own your primary residence, but suffered a physical loss
to your personal property. Family members residing in the same
household are eligible if they are not dependents of the owners of the
residence.
(b) Losses may be claimed only by the owners of the property at the
time of the disaster, and all such losses will be verified by SBA. SBA
will consider beneficial ownership as well as legal title (for real or
personal property) in determining who suffered the loss.
Sec. 123.101 When am I not eligible for a home disaster loan?
You are not eligible for a home disaster loan if:
(a) You have been convicted, during the past year, of a felony
during and in connection with a riot or civil disorder or other
declared disaster;
(b) You acquired voluntarily more than a 50 percent ownership
interest in the damaged property after the disaster, and no contract of
sale existed at the time of the disaster;
(c) Your damaged property can be repaired or replaced with the
proceeds of insurance, gifts or other compensation, including
condemnation awards (with one exception, these amounts must either be
deducted from the amount of the claimed losses or, if received after
SBA has approved and disbursed a loan, must be paid to SBA as principal
payments on your loan. You must notify SBA of any such recoveries
collected after receiving an SBA disaster loan (OMB Approval No. 3245-
0124). The one exception applies to the Individual and Family Grant
Program of the Federal Emergency Management Agency solely to meet an
emergency need pending processing of an SBA loan. In such an event, you
must repay the financial assistance with SBA loan proceeds if it was
used for purposes also eligible for an SBA loan);
(d) SBA determines that you assumed the risk (for example, by not
maintaining flood insurance as required by an earlier SBA disaster loan
when the current loss is also due to flood);
(e) Your damaged property is a secondary home (although if you
rented the property out before the disaster and the property would not
constitute a ``residence'' under the provisions of Section 280A of the
Internal Revenue Code, you may be eligible for a physical disaster
business loan);
(f) Your damaged property is the type of vehicle normally used for
recreational purposes, such as motorhomes, aircraft, and boats;
(g) Your damaged property consists of cash or securities;
(h) The replacement value of your damaged personal property is
extraordinarily high and not easily verified, such as the value of
antiques, artworks, or hobby collections;
(i) You or other principal owners of the damaged property are
presently incarcerated, or on probation or parole following conviction
for a serious criminal offense;
(j) Your only interest in the damaged property is in the form of a
security interest, mortgage, or deed of trust;
(k) The damaged building, including contents, was newly constructed
or substantially improved on or after February 9, 1989, and (without a
significant business justification) is located seaward of mean high
tide or entirely in or over water; or
(l) You voluntarily decide to relocate outside the business area in
which the disaster has occurred, and there are no special or unusual
circumstances leading to your decision (Business area means the
municipality which provides general governmental services to your
damaged home or, if not located in a municipality, the county or
equivalent political entity in which your damaged home is located).
Sec. 123.102 What circumstances would justify my relocating?
SBA may approve a loan if you intend to relocate outside the
business area in which the disaster has occurred if your relocation is
caused by such special or unusual circumstances as:
(a) Demonstrable risk that the business area will suffer future
disasters;
(b) A change in employment status (such as loss of job, transfer,
lack of adequate job opportunities within the business area or
scheduled retirement within 18 months after the disaster occurs);
(c) Medical reasons; or
(d) Special family considerations which necessitate a move outside
of the business area.
Sec. 123.103 What happens if I am forced to move from my home?
If you must relocate inside or outside the business area because
local authorities will not allow you to repair your damaged property,
SBA considers this to be a total loss and a mandatory relocation. In
this case, your loan would be an amount that SBA considers sufficient
to replace your residence at your new location, plus funds to cover
losses of personal property and eligible refinancing.
[[Page 58018]]
Sec. 123.104 What interest rate will I pay on my home disaster loan?
If you can obtain credit elsewhere, your interest rate is set by a
statutory formula, but will not exceed 8 percent per annum. If you
cannot obtain credit elsewhere, your interest rate is one-half the
statutory rate, but will not exceed 4 percent per annum. Credit
elsewhere means that, with your cash flow and disposable assets, SBA
believes you could obtain financing from non-federal sources on
reasonable terms. If you cannot obtain credit elsewhere, you also may
be able to borrow from SBA to refinance existing recorded liens against
your damaged real property. Under prior legislation, some SBA disaster
loans had split interest rates. On any such loan, repayments of
principal are applied first to that portion of the loan with the lowest
interest rate.
Sec. 123.105 How much can I borrow with a home disaster loan and what
limits apply on use of funds and repayment terms?
(a) For all disasters occurring on or after October 26, 1993, there
are limits on how much money you can borrow for particular purposes:
(1) $40,000 for repair or replacement of household and personal
effects;
(2) $200,000 for repair or replacement of a primary residence
(including upgrading in order to meet minimum standards of safety and
decency or current building code requirements). Repair or replacement
of landscaping and/or recreational facilities can not exceed $5,000;
(3) $200,000 for eligible refinancing purposes; and
(4) 20 percent of the loan amount (not including refinancing) up to
a maximum of $48,000 for mitigation.
(b) You may not use loan proceeds to repay any debts on personal
property, secured or unsecured, unless you incurred those debts as a
direct result of the disaster.
(c) SBA determines the loan maturity and repayment terms based on
your needs and your ability to pay. Generally, you will pay equal
monthly installments of principal and interest, beginning five months
from the date of the loan, as shown on the Note securing the loan. SBA
will consider other payment terms if you have seasonal or fluctuating
income, and SBA may allow installment payments of varying amounts over
the first two years of the loan. The maximum maturity for a home
disaster loan is 30 years. There is no penalty for prepayment of home
disaster loans.
Sec. 123.106 What is eligible refinancing?
(a) If your home (primary residence) is totally destroyed or
substantially damaged, and you do not have credit elsewhere, SBA may
allow you to borrow money to refinance recorded liens or encumbrances
on your home. Your home is totally destroyed or substantially damaged
if it has suffered uninsured or otherwise uncompensated damage which,
at the time of the disaster, is either:
(1) 40 percent or more of the home's market value or replacement
cost at the time of the disaster, including land value, whichever is
less; or
(2) 50 percent or more of its market value or replacement cost at
the time of the disaster, not including land value, whichever is less.
(b) Your home disaster loan for refinancing existing liens or
encumbrances cannot exceed an amount equal to the lesser of $200,000,
or the physical damage to your primary residence after reductions for
any insurance or other recovery.
Sec. 123.107 What is mitigation?
Mitigation means specific measures taken by you to protect against
recurring damage in similar future disasters. Examples include
retaining walls, sea walls, grading and contouring land, relocating
utilities and modifying structures. The money that you can borrow for
mitigation is limited to the lesser of the cost of mitigation, or 20
percent of your loan to repair or replace your damaged primary
residence and personal property. SBA will not accept a request for a
loan increase for mitigation filed after final disbursement of your
original loan unless you can show that your request was late because of
substantial reasons beyond your control.
Physical Disaster Business Loans
Sec. 123.200 Am I eligible to apply for a physical disaster business
loan?
(a) Almost any business concern or charitable or other non-profit
entity whose real or tangible personal property is damaged in a
declared disaster area is eligible to apply for a physical disaster
business loan. Your business may be a sole proprietorship, partnership,
corporation, limited liability company, or other legal entity
recognized under State law. Your business' size (average annual
receipts or number of employees) is not taken into consideration in
determining your eligibility for a physical disaster business loan. If
your damaged business occupied rented space at the time of the
disaster, and the terms of your business' lease require you to make
repairs to your business' building, you may have suffered a physical
loss and can apply for a physical business disaster loan to repair the
property. In all other cases, the owner of the building is the eligible
loan applicant.
(b) Damaged vehicles, of the type normally used for recreational
purposes, such as motorhomes, aircraft, and boats, may be repaired or
replaced with SBA loan proceeds if you can submit evidence that the
damaged vehicles were used in your business at the time of the
disaster.
Sec. 123.201 When am I not eligible to apply for a physical disaster
business loan?
(a) You are not eligible for a physical disaster business loan if
your business is an agricultural enterprise or if you fit into any of
the categories in Sec. 123.101. Agricultural enterprise means a
business primarily engaged in the production of food and fiber,
ranching and raising of livestock, aquaculture and all other farming
and agriculture-related industries.
(b) Sometimes a damaged business is engaged in both agricultural
and non-agricultural business activities. If the primary business
activity of your damaged business is not an agricultural enterprise,
you may apply for a physical disaster business loan, but loan proceeds
may not be used, directly or indirectly, for the benefit of your
agricultural enterprises, even if they also suffered damage.
(c) If your business is going to relocate voluntarily outside the
business area in which the disaster occurred, you are not eligible for
a physical disaster business loan. If, however, the relocation is due
to uncontrollable or compelling circumstances, SBA will consider the
relocation to be involuntary and eligible for a loan. Such
circumstances may include, but are not limited to:
(1) The elimination or substantial decrease in the market for your
products or services, as a consequence of the disaster;
(2) A change in the demographics of your business area within 18
months prior to the disaster, or as a result of the disaster, which
makes it uneconomical to continue operations in your business area;
(3) A substantial change in your cost of doing business, as a
result of the disaster, which makes the continuation of your business
in the business area not economically viable;
(4) Location of your business in a hazardous area such as a special
flood hazard area or an earthquake-prone area;
(5) A change in the public infrastructure in your business area
which occurred within 18 months or as a result of the disaster that
would result in substantially increased expenses for your business in
the business area;
[[Page 58019]]
(6) Your implementation of decisions adopted and at least partially
implemented within 18 months prior to the disaster to move your
business out of the business area; and
(7) Other factors which undermine the economic viability of your
business area.
Sec. 123.202 How much can my business borrow with a physical disaster
business loan?
(a) Disaster business loans, including both physical disaster and
economic injury loans to the same borrower, together with its
affiliates, cannot exceed the greater of the uncompensated physical
loss and economic injury or $1.5 million. Physical disaster loans may
include amounts to meet current building code requirements. If your
business is a major source of employment, SBA may waive the $1.5
million limitation. A major source of employment is a business concern
which has one or more locations in the disaster area which:
(1) Employed 10 percent or more of the entire work force within the
commuting area of a geographically identifiable community (no larger
than a county), provided that the commuting area does not extend more
than 50 miles from such community; or
(2) Employed 5 percent of the work force in an industry within the
disaster area and, if the concern is a non-manufacturing concern,
employed no less than 50 employees in the disaster area, or if the
concern is a manufacturing concern, employed no less than 150 employees
in the disaster area; or
(3) Employed no less than 250 employees within the disaster area.
(b) SBA will consider waiving the $1.5 million loan limit only if:
(1) Your damaged location or locations are out of business or in
imminent danger of going out of business as a result of the disaster,
and a loan in excess of $1.5 million is necessary to reopen or keep
open the damaged locations in order to avoid substantial unemployment
in the disaster area; and
(2) You have used all reasonably available funds from your
business, its affiliates and its principal owners (20% or greater
ownership interest) and all available credit elsewhere (as described in
Section 123.104) to alleviate your physical damage and economic injury.
(c) Physical disaster business borrowers may request refinancing of
liens on both damaged real property and machinery and equipment, but
for an amount reduced by insurance or other compensation. To do so,
your business property must be totally destroyed or substantially
damaged, which means:
(1) 40 percent or more of the aggregate value (lesser of market
value or replacement cost at the time of the disaster) of the damaged
real property (including land) and damaged machinery and equipment; or
(2) 50 percent or more of the aggregate value (lesser of market
value or replacement cost at the time of the disaster) of the damaged
real property (excluding land) and damaged machinery and equipment.
(d) Loan funds allocated for repair or replacement of landscaping
or recreational facilities may not exceed $5,000 unless the landscaping
or recreational facilities fulfilled a functional need or contributed
to the generation of business.
Sec. 123.203 What interest rate will my business pay on a physical
disaster business loan and what are the repayment terms?
(a) SBA will announce interest rates with each disaster
declaration. If your business, together with its affiliates and
principal owners, have credit elsewhere, your interest rate is set by a
statutory formula, but will not exceed 8 percent per annum. If you do
not have credit elsewhere, your interest rate will not exceed 4 percent
per annum. The maturity of your loan depends upon your repayment
ability but cannot exceed 3 years if you have credit elsewhere.
Otherwise, the maximum maturity is 30 years.
(b) Generally, you must pay equal monthly installments, of
principal and interest, beginning five months from the date of the loan
as shown on the Note. SBA will consider other payment terms if you have
seasonal or fluctuating income, and SBA may allow installment payments
of varying amounts over the first two years of the loan. There is no
penalty for prepayment for disaster loans.
Economic Injury Disaster Loans
Sec. 123.300 Is my business eligible to apply for an economic injury
disaster loan?
(a) If your business is located in a declared disaster area, and
suffered substantial economic injury as a direct result of a declared
disaster, you are eligible to apply for an economic injury disaster
loan.
(1) Substantial economic injury is such that a business concern is
unable to meet its obligations as they mature or to pay its ordinary
and necessary operating expenses.
(2) Loss of anticipated profits or a drop in sales is not
considered substantial economic injury for this purpose.
(b) Economic injury disaster loans are available only if you were a
small business (as defined in part 121 of this chapter) when the
declared disaster commenced, you and your affiliates and principal
owners (20% or more ownership interest) have used all reasonably
available funds, and you are unable to obtain credit elsewhere (as
described in Sec. 123.104).
(c) Eligible businesses do not include agricultural enterprises,
but do include--
(1) Small nurseries affected by a drought disaster designated by
the Secretary of Agriculture (nurseries are commercial establishments
deriving 50 percent or more of their annual receipts from the
production and sale of ornamental plants and other nursery products,
including, but not limited to, bulbs, florist greens, foliage, flowers,
flower and vegetable seeds, shrubbery, and sod);
(2) Small agricultural cooperatives; and
(3) Producer cooperatives.
Sec. 123.301 When would my business not be eligible to apply for an
economic injury disaster loan?
Your business is not eligible for an economic disaster loan if you
fit into any of the categories in Secs. 123.101 and 123.201, or if your
business is:
(a) Engaged in gambling, lending, multi-level sales distribution,
loan packaging, speculation, or investment (except for real estate
investment with property held for rental when the disaster occurred);
(b) A non-profit or charitable concern;
(c) A consumer or marketing cooperative; or
(d) Not a small business concern.
Sec. 123.302 What is the interest rate on an economic injury disaster
loan?
Your economic injury loan will have an interest rate of 4 percent
per annum or less.
Sec. 123.303 How can my business spend my economic injury disaster
loan?
(a) You can only use the loan proceeds for working capital
necessary to carry your concern until resumption of normal operations
and for expenditures necessary to alleviate the specific economic
injury, but not to exceed that which the business could have provided
had the injury not occurred.
(b) Loan proceeds may not be used to:
(1) Refinance indebtedness which you incurred prior to the disaster
event; or
(2) Make payments on loans owned by another federal agency
(including SBA)
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or a Small Business Investment Company licensed under the Small
Business Investment Act; or
(3) Pay, directly or indirectly, any obligations resulting from a
federal, state or local tax penalty as a result of negligence or fraud,
or any non-tax criminal fine, civil fine, or penalty for non-compliance
with a law, regulation, or order of a federal, state, regional, or
local agency or similar matter; or
(4) Repair physical damage; or
(5) Pay dividends or other disbursements to owners, partners,
officers or stockholders, except for reasonable remuneration directly
related to their performance of services for the business.
Dated: November 11, 1995.
Philip Lader,
Administrator.
[FR Doc. 95-28450 Filed 11-22-95; 8:45 am]
BILLING CODE 8025-01-P
