SBA Loans for Rebuilding

On May 3 (Commentary) you published an article by Stewart Kwoh, Angela E. Oh and Bong Hwan Kim about the full range of problems associated with rebuilding and recovery in Los Angeles after the riots. Unfortunately, two of the references to the U.S. Small Business Administration (SBA) are inaccurate and perhaps misleading.

The article points out that SBA disaster loans are disbursed incrementally, but erroneously concludes that “the small business owners cannot adequately cover start-up costs requiring large capital outlays, such as inventory purchases and equipment rental.” SBA is generally willing to make an initial disbursement on any physical disaster loan up to $10,000 before SBA’s lien position on the collateral has been properly recorded. From that time forward, SBA disburses loan funds as the borrower shows a need. When construction is involved, SBA’s disbursements match the construction schedule.

Inventory and machinery and equipment needs are treated differently. SBA knows that businesses need to be able to purchase sufficient goods to enable firms to establish full operating capability. We know that piecemeal disbursements for inventory could be devastating for a business. Accordingly, for disbursement of disaster loan funds for inventory, SBA’s general policy is to release up to 80% of the amount for inventory in a single disbursement, with the remainder disbursed as the borrower incurs the need.

Through May 7, SBA has approved 5,460 loans for $324 million to victims of the Los Angeles riots. SBA approved about 77% of the completed loan applications received, a higher than average rate. After post-approval adjustments (for example, decreases to reflect additional insurance recoveries), $314 million was available to be disbursed. Of this total, nearly $225 million (almost 72% of the loan funds) has been disbursed to borrowers. Well over half of the approved loans have been fully disbursed. Any business needing further assistance in disbursement should contact the SBA disaster office at (800) 488-5323.

A dispute resolution panel, as suggested by the authors of the article, is not necessary. SBA declines of loan requests are made only after concurrence of two qualified loan officers. Established reconsideration procedures for all SBA loan decisions are set forth in all decline letters.

BERNARD KULIK

SBA, Washington