The Small Business Administration’s Hurricane Sandy Disaster Loan Program

Small businesses.

Applicants are required to complete the two-page SBA Disaster Business Loan Application (SBA Form 5), as well as submitting the documents outlined below. Note that if a business previously submitted an application with the required copies of federal tax returns for 2009–2011, then only the returns from 2012–2014 are required. Also note that if a return is on extension, a copy of the filed extension is required. In addition, the SBA requires both the IRS forms and the copies of federal returns and associated schedules. Failure to submit both the forms and copies of the returns will result in rejection of the application. In the last filing period, 582 applications were withdrawn because the IRS did not have complete records of the applicants’ business returns.

• SBA Form 159 D, Fee Disclosure and Compensation Agreement. This form is only required for businesses that paid a fee for an independent individual (e.g., CPA, lawyer) to assist with the loan application process.
• SBA Form 413, Personal Financial Statement. All principal owners with a 20% or greater equity interest must submit this form. The data on the form must represent the applicant’s financial status within 90 days of the loan application.
• SBA Form 2202, Schedule of Liabilities. Applicants may use the SBA’s form or submit their own form. Schedules created in computer programs such as Excel or Quickbooks are acceptable.
• SBA Form 1368, Monthly Sales Figures (Only for Economic Injury Loan Applications). Businesses may use the SBA form or provide their own form to list monthly sales figures from 2010 through the present. If exact monthly figures are not available, annualized sales may be divided by 12 months approximate monthly sales. Business owners are also requested to submit a one-year sales forecast, which should be attached to this form.
• Business federal tax returns for years 2009–2014, including schedules.
• Personal tax returns for years 2009–2014, including schedules, of all principals in the business possessing a 20% or greater equity interest, as well as all partners, managers, and affiliates.
• Business federal returns, including schedules, for years 2009–2014, of all affiliate businesses held by any of the principals with a 50% or greater equity interest. Affiliates include parent and subsidiary businesses, as well as any businesses where there is common ownership.
• 2015 federal tax returns, if filed. If business returns have not been filed yet, a 2015 profit and loss statement and balance sheet will suffice. Balance sheets are not required for sole proprietorships.
• Completed and signed IRS Form 4506T, Disaster Request for Transcript of Tax Return, for tax years 2012–2014.
• Completed and signed IRS Form 8821, Tax Information Authorization for tax years 2009–2011 (if not submitted with previous application).
• Listing of financial resources received from other sources, including insurance disbursement. The list should indicate the source of the funds, type of assistance (e.g., grant, loan), and the terms, including interest rate, maturity date, collateral, and cosignee.
• Losses incurred/recovery costs to date, including property damage or loss and all sources of economic injury (e.g., increases in rental or lease costs). Applicants should document all personal resources used to aid in the recovery process, as well as any other information that will delineate the cost of the process.

Homeowners.

Homeowners are required to submit only the following forms:

• SBA Form 5c, SBA Homeowner Loan Application.
• Federal tax returns. Self-employed homeowners are required to submit 2014 personal and business tax returns. Business financial statements are not required, and homeowners that are not self-employed are not required to submit returns.
• Completed and signed IRS Form 4506T, Disaster Request for Transcript of Tax Return for 2014.

Not-for-profit organizations.

The required forms for not-for-profit organizations are below:

• IRS Forms 8821 for years 2009 through 2011, and Form 4506T for years 2012–2014.
• Federal tax returns for years 2009–2014

Collateral requirements.

In the first SBA loan filing period after Hurricane Sandy, collateral was required for all PDBLs over $14,000 and all EIDLs over $5,000. As shown by Exhibit 2, the SBA has increased these amounts to $25,000 for each type of loan. Renters applying for loans do not require collateral.

Loan turnaround time.

The SBA’s current goal in the wake of Hurricane Matthew is to reduce loan processing time to no more than 21 days. Applicants will then recieve their finalized loan documents and will be contacted to close on their loans shortly thereafter.

Reduced documentation requirements.

To simplify the loan application process, the SBA is in the process of streamlining required documentation. As an example, the SBA has modified the Code of Federal Regulations, Title 13: Business and Credit Assistance, section 123.6—What does SBA look for when considering a disaster loan applicant? Previously, this section read in part:

As of April 24, 2014, this has been modified to read:

Prior to this modification, the SBA analyzed both personal and business cash flow for every disaster loan applicant, which was a very time-consuming process. The SBA now has the option of reviewing either cash flow or the applicant’s credit score in order to determine repayment ability.

Separate tracks for homeowners and businesses.

One year after Sandy, at the recommendation of the Hurricane Sandy Rebuilding Task Force, the SBA created two separate tracks for loans, one for business disaster loans and one for homeowner loans. This will ensure that loan applications for small businesses will be addressed separately from homeowner loans, which will expedite processing.

Online loan application submission.

While the easiest way to apply for loans is via the SBA’s website, applicants must keep in mind that the supplemental forms listed above must be submitted along with the application. Although all of the documents do not have to be submitted at once, once an applicant submits the online application, he only has seven days to provide all the necessary documents. In addition, once it is submitted, an SBA representative will review the application to ensure it is complete. This process could take several days, which means that the seven-day window would now be reduced to a three- or four-day window. After the seven days, the applicant’s file is closed and a request must be submitted to the SBA to reopen it. Due to these tight time constraints, it is recommended that an applicant compile all necessary documents prior to submitting the application. The key to timely loan processing is to ensure that all necessary documents are submitted completely and accurately. Loan processing is delayed by incomplete and erroneous applications. Applicants who are uncertain about the process are encouraged to visit the local Small Business Development Center or call the toll-free number for assistance.

Credit scores.

As indicated above, the SBA will review applicant credit scores to determine loan eligibility. Applicants are encouraged to provide information about credit scores prior to Hurricane Sandy, since this information may provide additional proof of their creditworthiness.

Proof of loss.

Upon approval, an SBA loss verifier will contact the applicant to determine the estimate of loss. The applicant is encouraged to provide receipts, photos, construction contracts, and any other proof of the physical damage and economic impact Hurricane Sandy has had on the home or business. While photographs may not be required, they may aid the loss verifier in assessing the damage incurred to the structure, equipment, landscaping, and contents, as well as costs for debris removal and cleanup, septic and sewage issues, and land improvements.

Negotiation of loan terms.

After the loss verification, approved applicants will be contacted by a loan officer. The loan officer will provide the documents detailing the loan amount, terms, and expected timeframe for distribution of funds. If an applicant believes that the terms or the dollar amount could be more favorable, she should request that they be reviewed. Please note that there is no guarantee that the terms or loan amount will be adjusted; however, in some circumstances, a request may result in more favorable terms.

Cosigned loans.

Although the documentation from the SBA does not provide details on this topic, applicants with poor credit history or poor debt-to-income ratios may request a cosigner for a disaster loan. The cosigner must provide the same documents to the SBA as the applicant, including federal tax returns.

Collateral.

All homeowners and businesses requesting loans exceeding $25,000 will require collateral. Many Sandy victims have expressed concern about using their remaining assets as collateral for a loan. Applicants should be aware that the collateral required may not be a dollar-for-dollar match; for example, if the applicant is eligible for a $50,000 loan, he might not be required to provide collateral worth $50,000.

Insurance requirements.

Before a loan can be closed, the applicants must have insurance policies in force that will cover both contents and structure. Businesses are required to have a flood insurance policy, while homeowners must have both a homeowners and flood insurance policy. Loan applicants should be aware that for all loans in excess of $25,000 (excluding loans to renters), the SBA will be listed on these insurance policies as an endorsee, as protection for the SBA should the applicant default on the loan. Insurance companies are required to list any other endorsees on the policy, even if it is the SBA for a prior disaster.

Loan closing.

There are no loan origination or closing fees payable to the SBA for disaster loans, since the applicant will be completing all the necessary steps on her own behalf. Once the loan documents are provided to the applicant, she is responsible for obtaining two notarized copies of the loan agreement, having the loan recorded at the county clerk’s office, and obtaining the necessary documents from her insurance agent. The original documents must then be submitted to the SBA to finalize the loan. The applicant is encouraged to request the assistance of the SBA case manager to ensure that the closing process goes smoothly. The case managers have legal backgrounds, making them a good resource for applicants.