As wildfires continue to burn across Southern California, thousands of business owners, homeowners and renters are facing the daunting challenge of rebuilding from the ashes. For some of them, the road ahead will be even more difficult because they did not have enough insurance to cover their losses. For them, the US Small Business Administration is a potential lifeline.
The SBA, which provides emergency loans to businesses, homeowners, renters and nonprofits, is among the few relief options for the uninsured or underinsured. Uninsured Angelenos can also apply disaster relief through the Federal Emergency Management Agency, or FEMA.
The current fires are destroying a state that was already in the middle of a house the insurance crisis. Thousands of homeowners have lost their insurance in recent years as providers withdraw from fire-prone areas and raise their prices in the face of increased risk.
“For those who are not going to get that insurance payment, this is available,” Small Business Administration chief Isabella Casillas Guzman said in an interview during a recent trip to the fire zones. “Loans are intended to fill gaps, and this is very broad.”
About one-third of businesses have no insurance and three-quarters are underinsured, Guzman said.
“There will be ripple effects throughout the community,” she said. “Insurance will not cover this disaster.”
Businesses, nonprofits, and small agricultural cooperatives can apply for an economic injury loan or a physical injury loan through the SBA. Homeowners are eligible for physical damage loans. Economic damage loans are intended to help businesses meet ordinary financial requirements, while physical damage loans provide funds for repairs and restoration. People can apply online and the loans must be repaid within 30 years.
Renters can receive up to $100,000 in assistance, homeowners up to $500,000 and businesses up to $2 million, according to Guzman. Homeowners and renters who can’t get a loan elsewhere can qualify for a loan with an interest rate of 2.5%. The SBA determines that an applicant does not have a loan available elsewhere if they have no other funds to pay for disaster recovery and cannot borrow from non-government sources.
Interest rates for homeowners and renters who have access to credit elsewhere are just over 5%. Business loans can come with interest rates of 4% or 8% depending on whether the business has other credit options.
An applicant must demonstrate that they are able to repay their loan and have a credit history acceptable to the SBA in order to be approved. The loans became available after President Biden’s announcement of a great disaster in California.
“We have already received hundreds of applications from individuals and businesses interested in exploring additional support,” Guzman said. “We know that economic disruption may not be included in the footprint of evacuation zones or power outages.”
People who don’t have insurance or whose insurance doesn’t cover the entirety of their losses are eligible for loans, Guzman said. While many will use the funds to start over after losing their property in the fires, businesses that are still standing can also apply for support to cover lost income.
Guzman was unable to estimate the total value of the loans they expect to offer in California, but said the organization is on solid financial footing after temporarily running out of funds in October.
“The funding has been replenished by Congress and we expect to be able to coordinate closely with Congress,” Guzman said. “We are fully funded and in a good position to provide support.”
