The SBA is authorized to provide up to $2 million in low-interest, long-term business disaster loans to cover physical or economic damage. But the agency depends on Congress to replenish its funding.
from Brandon KochkodinForbes Staff
The first of the fires broke out in the Pacific Palisades neighborhood of Los Angeles last Tuesday morning, tearing through dry brush in the Santa Monica Mountains. As of Sunday, the Palisades Fire was still spreading and four large fires had burned nearly 40,000 acres in the LA area, claiming at least 24 lives, destroying or damaging more than 12,000 structures and causing economic damage that now valued at up to $150 billion. Palisades, with its canyon and ocean views, was known for its high-end homes, ranging from sleek modern designs to classic Spanish California-style estates. Another rundown neighborhood, Altadena, 35 miles to the east, had some more modest homes that families had owned for generations.
But the fire hasn’t just claimed lives and leveled homes – it has also claimed thousands of shops and restaurants and damaged the business prospects of those still standing. In the Palisades 90272 zip code alone, there were more than 1,000 businesses before the fire. Across Southern California, business owners, and especially those who depend on local customers, now face the difficult decision of whether to rebuild and reopen, gambling that demand will recover quickly enough to make the risk worth it.
Some restaurants destroyed by the fires are already asking for community support to rebuild. Fox’s, an Altadena restaurant with roots dating back to 1955, and Reel Inn, a casual seafood joint in Malibu, are among those that have started GoFundMe campaigns to help their employees, Los Angeles Times reported. Fox’s has already raised $34,555 and Reel Inn $135,337. But many long-time customers are likely now struggling themselves.
The Small Business Administration’s (SBA) disaster loan program can provide a longer, more substantial life to help restaurants reopen. It provides direct loans of up to $2 million at rates as low as 4% to businesses that have suffered physical damage or economic loss from a declared disaster. Eligible businesses include not only those burned by the fire, but also some indirectly affected, such as suppliers or businesses that rely on destroyed neighborhoods for customers. Among the benefits of SBA direct disaster loans: Interest doesn’t start accruing until a year after the business receives the money.
(Surprisingly, nonprofits and even individual homeowners and renters can also qualify for SBA disaster loans, with rates as low as 3.625% for nonprofits and 2.563% for homeowners and renters. Homeowners can borrow up to $500,000 to fix up or replace their primary residence homeowners and renters can get loans up to $100,000 to replace personal property These loans are meant to cover what insurance doesn’t.
The SBA’s disaster loan program, started in 1953, now makes two main types of loans available to businesses: physical damage loans and economic damage loans. Physical damage loans can provide up to $2 million to repair or replace buildings, equipment or inventory. Economic damage loans help with day-to-day expenses when sales drop after a disaster, and they also have a limit of $2 million. A business can apply for both loans, but total borrowing is usually limited to $2 million, regardless of whether a business uses one or both programs. (SBA is allowed to increase the $2 million limit in certain cases where jobs are at risk.)
SBA loans can be repaid in up to 30 years, giving a rebuilding business plenty of time to get back on its feet. These are direct loans, not loan guarantees, which means applicants do not need to get approved by a local bank, but they must have adequate credit scores and post loan collateral over $25,000.
On January 7, the Small Business Administration declared Los Angeles County a disaster area, opening the door for businesses there to apply for physical and economic damage loans and those in neighboring affected counties to apply for economic damage coverage . The next day, President Biden, through the Federal Emergency Management Agency, approved a major disaster declaration for the county. This step is critical because it makes it easier for the federal government to allocate more funds to the SBA’s disaster loan program. With the major disaster declaration in effect, additional federal resources are more likely to be directed toward helping local businesses recover.
The SBA’s disaster loan program entered the new fiscal year (which began Oct. 1) with just $339 million in its account, $94 million of which had already been used, according to data from USASpending.gov.
While that may sound alarming, it doesn’t have to be — as long as the Southern California wildfires don’t turn into a political football. The program is not funded with a view to major disasters. Instead, the assumption is that after a major disaster, Congress will act quickly to issue what is needed. Most of the time, it does – but not always, and not necessarily as quickly as business owners desperate to rebuild might like.
After Hurricanes Helene and Milton hit in late September and early October, respectively, the fund ran dry on October 15. The SBA told businesses to continue applying anyway, but it took Congress until mid-December to approve an additional $2.25 billion in funding for the program. For weeks, those waiting for loans were left in limbo – a reminder that quick action is not guaranteed. It’s unclear how much of that fresh $2.25 billion will be left over to California applicants after all applications related to Milton and Helene are processed; SBA did not respond to requests for information on available funding. A Democratic Senate staffer said Forbes that the SBA reported having billions in funds available as of last week. Adding to the uncertainty are statements made by some Republicans (including President-elect Trump) blaming California officials for the plight of burned communities around Los Angeles.
“Congress is monitoring the situation closely as state and local response efforts continue,” says an aide to House Republican leadership. “Once the situation is under control, state and local officials will assess the full extent of the damage. It is too early to know whether additional federal resources will be needed.” Similarly, a Senate staffer who works for a key Democrat noted that with damage assessments ongoing, it’s unclear when the SBA might need more resources.
But it’s not just the speed with which Congress approves any additional funding needed that sometimes keeps anxious business owners waiting. The SBA has faced criticism in the past for being slow in processing loans. After Superstorm Sandy in 2012, it took an average of 66 days to process disaster loans, a number that dropped to 53 days after Hurricanes Harvey, Irma and Maria in 2017, according to a 2020 report from the Government Accountability Office (GAO). . As of this month, however, the agency is still processing nearly two-thirds of the applications it received after Hurricanes Helene and Milton — a longer backlog tied at least in part to Congress’s delay in providing additional funding.
The deadline to apply for a personal injury loan due to the Los Angeles wildfires is March 10. For an economic damage credit, it’s Oct. 8, 2025. But both deadlines could be extended, depending on how long it takes to fully extinguish the fires and if Congress appropriates any additional funding needed for the program.
While these loans can be a lifesaver, they are not without risks. For a small business owner already dealing with the aftermath of a major disaster, the idea of taking on debt can seem overwhelming. Will borrowing to rebuild create a path to recovery, or will it simply add more pressure to an already difficult time? It’s a question every business owner should weigh carefully. That said, studies show that businesses that receive disaster loans are more likely to survive.
A study published in 2024 by the Center for Economic Studies, part of the US Census Bureau, analyzed the effects of SBA disaster loans on small businesses. He found that businesses that received these loans were 13 percentage points more likely to remain operational after a disaster than those that applied but were denied such a loan (21% of those denied went out of business during the study’s observation period ). The loans helped cover immediate costs such as repairs and operations, with recipients experiencing faster income recovery.
Maria Watson, a professor at the University of Florida’s School of Construction Management, studied the SBA disaster loan program after Hurricane Ike, which hit Galveston, Texas, in 2008. Her research found similar results: businesses that received help for disasters were more likely to survive than those who did not survive. The data showed a clear advantage for beneficiaries, and even businesses that were displaced after the disaster had higher survival rates if they received the loans.
Watson says that while her research shows that SBA loans help businesses survive, taking on more debt is not an easy decision. “It’s difficult if you have to take on this additional debt when your income stream is up in the air, when population changes are happening.” (Remember, there’s no banker who has to approve these direct loans—it’s up to the business owner to decide if a loan makes sense.)
However, Watson encourages small businesses and homeowners to at least apply if they are eligible.
“You can always say no if you’re approved,” Watson says. “Make sure you’ve really thought about your business plan and what the recovery will look like in your area.”
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