With new disaster loans from the U.S. Small Business Administration, borrowers will find that for the first year, the interest rate is waived and that initial payments are deferred automatically to 12 months.
“We must ensure that communities struck by disaster have the help they need to recover in the wake of natural disasters, and the Biden-Harris Administration is 100% focused on finding more ways to assist,” SBA Administrator Isabella Casillas Guzman said in a statement about new disaster loans.
“Our zero-interest disaster loan and payment deferral solutions add new tools to our toolbox to help small business owners gain flexibility as they work to invest, reopen, and get back to business,” Guzman added.
The announcement of the new terms follow the devastation of hurricanes in Florida and Puerto Rico, but the SBA says the change is effective for all disaster loans approved in response to a disaster declared on or after Sept. 21, 2022, through Sept. 30, 2023.
“Disaster-impacted residents in Florida, Puerto Rico, and others facing disaster can count on the SBA to help in any way it can in the days and months ahead,” Guzman said.
The change aims to help borrowers from the devastating impacts of a disaster. Earlier this year, Hurricane Ian, for example, killed more than 100 people and caused billions of dollars in damage, according to published reports.
Under the SBA’s change, disaster loan borrowers will now have up to one year from the date of the note to begin making payments, instead of the standard five months. The interest on the loan will not begin to accrue until 12 months from the date of the initial loan disbursement. Previously, interest would begin to accrue on all disbursed loan funds including during the initial payment deferment period.
This week’s announcement aims to benefit disaster survivors and help them to decrease the overall cost of recovery by setting the interest rate to 0% for the first 12 months and reducing the overall amount of accrued interest they must repay, according to the SBA.
The SBA disaster loans offer individuals and businesses “direct access to affordable financial assistance to help fully repair or replace disaster-damaged property.” With the changes, and with low fixed-interest rates for the remaining 30-year term, the SBA is “maximizing disaster survivors’ likelihood of a successful recovery and minimizing further financial hardship,” it said about those borrowing in response to a disaster declared after Sept. 21 through September of 2023.
For these borrowers, the extended deferment to 12 months is automatic, which means that loan borrowers do not need to take any additional action once the loan is approved. The borrowers will not face a prepayment penalty, and if they choose, they can begin making loan payments during the deferment period.
Most immediately, the change brings a bit of relief to those businesses that applied for loans after Hurricane Fiona and Hurricane Ian. They will find that the effective date for the change covers the SBA disaster loans that are currently available for Hurricane Fiona and Hurricane Ian that were declared earlier this year. However, the SBA stated that the agency does not have the authority to forgive interest that has already accrued on disbursed loan funds.
Borrowers who already received a loan for a disaster declared after the Sept. 21 effective date will also receive an automatic extension of their first payment due date to 12 months and 0% interest. SBA will notify eligible borrowers of their loan modification and they will not need to submit a request to receive this automatic benefit.
As of Dec. 5, the SBA said that the agency has approved $1.2 billion for residents and businesses that have been impacted by Hurricanes Fiona and Ian.
Adina Genn
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