After nearly 30 years, the U.S. Small Business Administration (SBA) has increased the Disaster Loan Program limits. Based on the inflationary rates that have impacted the U.S. housing market for the past 20 years, the Agency has labeled this amendment as an “overdue” action, but a necessary one in light of current construction and labor costs.
According to the rule published in mid-July, this is also due to the increase of properties in these almost three decades, so the coverage of its programs was insufficient for many owners. The rule came into effect last July 31 and is applicable to all disasters declared from that date onwards.
Main changes made by SBA
Since 1994, SBA did not update the disaster compensation amounts, which resulted in insufficient compensation amounts to help disaster victims, therefore, the survivors could not cover all the damages and material losses suffered by their properties.
In addition, it should be noted that the frequency of natural disasters has been increasing since that last publication, as well as the unfortunate consequences and losses they have left behind. For all these reasons, the Agency recently increased the lending limits in amounts for home loans for:
- Repair and replacement of disaster-damaged real and personal property
- Refinancing
- Mitigation
- Contractor malfeasance
Another notable change is the official increase of the initial deferment period. This will go from 5 months to 1 year, which will alleviate the pressure on survivors since they will not have to pay the financial burden immediately, but after 12 months.
All these changes are applied after an exhaustive study of the markets and of the amounts that on average a survivor needs to replace some of their losses.
@owneractions If you thought buying a business was out of your reach, check out this news from the SBA. Some key terms for SBA loans have changed, and those changes could help you take on larger deals and use seller financing to cover more of your down payment. #buyabusiness #investing #sbaloan #fyp
Will there be more changes after this rule?
Apparently, yes. In the rule summary, the SBA clarifies that further evaluations are being made for future changes. The agency anticipates increasing, in the coming months, the maximum amounts of disaster-specific loans to homeowners and renters. This change would be based on the following economic indicators:
- Current building costs
- Regional median home prices
- The consumer price index (CPI) by state
- The producer price index (PPI) by state
This would allow for more accurate quantity loans that would help the survivors according to the reality in which they live. However, this would not be the only future change, as the SBA also adds that they are revising their policies to expand access to disaster loans.
What are the new SBA Home Disaster Loan amounts?
Don’t be surprised with the new amounts, remember that the previous ones were not adjusted to the reality of the country and even less to the post-pandemic context. In addition, the SBA explains that after a natural disaster, costs within the construction industry increase considerably. These are the changes:
| Detail | Amount |
| Repair and replacement of household and personal effects. | Increases from $40,000 to $100,000. |
| Repair and replacement of a primary residence | From $200,000 to $500,000. |
| Landscaping and other land improvements | Goes from $5,000 to no limit. |
| Eligible refinancing purposes, and eligible embezzlement | Increases from $200,000 to $500,000. |
| Post-disaster mitigation | Will be paid starting at 20% of the verified loss up to a maximum of $500,000. |
The Agency adapts these new policies to provide survivors with relief so they have access to real and tailored amounts for the repair of their property.
It is important to note that SBA added a new paragraph to CFR § 123.105, which allows the Administrator to increase the value of home loans based on economic indicators such as CPI, PPI, and real estate and construction market costs.
Do you want to know if you can apply for refinancing? Yes, you can, but the amount will be adjusted to the limits I showed you and also to the amounts calculated for the physical damage to the property.
What are the changes to the SBA Business Loan?
For businesses, the SBA has eliminated several restrictions, improving the opportunities for assistance to those businesses that suffer losses and damages due to a disaster. In this rule, restrictions on the amount eligible for business refinancing are eliminated.
Likewise, if the business owner has other types of compensation, the SBA eliminated the condition to reduce the amount of financing provided. In addition, the rule indicates that some paragraphs on business loans are being reviewed and modified.
Another benefit included is the extension of the payment term from 5 to 12 months and the first disbursement will be made as of the twelfth month. In addition, the consumer co-operative and marketing co-operative become eligible for the economic injury disaster.
In the case of the latter, they may also apply for Military Reservist Economic Injury Disaster loans.
References
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“Rules and Regulations Federal Register.” Gov Info, https://www.govinfo.gov/content/pkg/FR-2023-06-16/pdf/2023-12779.pdf
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“SBA Announces Major Changes to Its Disaster Lending Program | U.S. Small Business Administration.” Small Business Administration, https://www.sba.gov/article/2023/07/31/sba-announces-major-changes-its-disaster-lending-program
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Skip. SBA Doubles Disaster Loan Limits. YouTube, https://www.youtube.com/watch?v=piJO5LBwvCM
“Small Business Administration § 123.105 .” Gov Info, https://www.govinfo.gov/content/pkg/CFR-2014-title13-vol1/pdf/CFR-2014-title13-vol1-sec123-102.pdf