An article recently published by Louisville Public Media, shares how homeowners and business owners are working on their recovery from a natural disaster, notably, the Kentucky floods of July, 2022.  We learned so much about the SBA and its disaster loan program during COVID by assisting thousands of Small Business Owners.  There’s good news, and there’s bad news. We reflect on both.

We summarize several key points from the article to help you better understand three things about SBA natural disaster loans:

1. SBA is the lending processing “infrastructure.” That’s why FEMA refers you to SBA for the loan. But, the lending process can be complicated, lengthy, confusing, and bureaucratically rigid.
2. You must apply for the SBA natural disaster loan and receive a decision before you can request most other FEMA assistance.
3. SBA sees its natural disaster loan mission as making your Small Business “100% whole to cover uninsured losses.”

One homeowner interviewed refused to accept an approved SBA loan because “The strings that are attached and all the things that go along with an SBA loan is quite extraordinary.”

An SBA public affairs specialist is quoted in the article saying, “Our job is to try to make someone whole as near as possible. We cover up to 100% of their uninsured losses.”

Our experience with SBA is this: while these SBA intentions are noble, SBA’s internal workings often present many obstacles to the goal of approval, notably with poor communications between SBA and applicants and with inconsistent underwriting standards applied by SBA staff.

Investigators from other governmental organizations have previously determined the FEMA-SBA process is overly complicated and poorly communicated. Many people in a disaster situation simply cannot understand why they must apply for a loan, nevertheless a loan through the Small Business Administration.

These same investigations uncovered the fact that many people “leave money on the table” by failing to apply for loans or turning down loan offers. Many others are frustrated by slow response times.

In our work during COVID-19, we often advised people to follow “Trevor’s Golden Rule: Always Apply.”   The SBA natural disaster loan can provide a much-needed lifeline to recovery at very low-interest rates.  And applicants do not need to accept the loan even when finally approved.

Small Business Owners should note that “FEMA does not offer grants to businesses. SBA loans are the primary federal resource available for…businesses…(damaged) in a disaster.“

A researcher who is an Assistant Professor at a University, interviewed, provides the following feedback based on her research on how communities, including businesses, recover from disasters. Her research “shows that businesses whose owners receive SBA loans are more likely to survive after a disaster.”

A business owner interviewed in the article stated that she applied for an SBA natural disaster loan but was “declined…because of credit.”

We learned that SBA’s declinations for credit are misleading.  First, SBA’s own underwriting guidelines for Loan Officers state that an applicant for a natural disaster loan does not have to be denied due to credit.

Second, we know from experience that SBA loan officers often don’t know how to read a credit report, relying solely on the credit score, which is addressed in the underwriting guidelines as “not the only reason” for denying the application. SBA’s guidelines encourage their loan officers to delve deeper into credit history and ask questions about credit rather than rely solely on credit scores.  But we know from experience that SBA loan officers very often ignore these guidelines and base their application decisions solely on credit score.

Trevor has discussed credit scores extensively on our YouTube channel.  We have a playlist dedicated to credit score inquiries, low credit scores when applying for a loan and how to write a credit explanation letter. Watch this video on the myth of running credit and the common question about “hard vs. soft hits.”

Lastly, regarding credit, many applicants have identity protections including locked credit reports.  We have seen many, many times where SBA will decline an applicant for “credit” due solely to the reason that the credit report was locked and SBA could not access the report.  SBA representatives consistently fail to disclose this pertinent fact to applicants and SBA’s declination letter makes no mention of a locked credit report stating only that the application was declined “due to credit.”

We have stated repeatedly in our YouTube videos that you must request Reconsideration to fight when your SBA natural disaster application is declined.  This brings your application to a higher level of scrutiny that can get the negative decision overturned for a positive result in your favor: approval.

Our final observation on this excellent article from Louisville Public Media. Based on this quote from a disaster resource attorney who works with an organization that provides free legal assistance:  “…she tells clients who do qualify for an SBA loan to take it because not taking it may disqualify them from additional assistance and the other financial option will most likely be a personal or bank loan.  If a disaster survivor doesn’t use financial assistance, they might leave the area…”

During the pandemic, we assisted thousands of Small Business Owners with the SBA program.  We know the complaints and anxieties by Small Business Owners, about the program, are legendary.  But we also know that, without that assistance, so many more businesses would have failed due to the pandemic.  

That’s why we provide these YouTube videos and our expert advice: we know the value of these programs. That’s why we often say, “Stop complaining and start submitting!”  

1. Get your SBA natural disaster application submitted.
2. Follow up and respond in a timely manner with documents.
3. Set your frustrations about SBA’s process aside; do the work.  

The benefit you receive on the other side is tremendous and will help your business recover from the natural disaster. 

You can visit our EIDL Natural Disaster Consulting service page where you can complete a survey if you’re interested in assistance through this complicated process.