SBA Lowers Requirements for Large Loans

The Small Business Administration revised its regulations Wednesday to make many smaller and mid-size businesses damaged by the Northridge earthquake eligible for low-interest loans exceeding $1.5 million.

The SBA raised its loan cap for firms with as few as 250 employees. Previously, most employers had to have more than 1,000 workers to qualify for loans of more than $1.5 million.

The agency also lowered a second criterion for large loans. A business that employed 10% of the entire work force from a given industry in a disaster area could qualify previously; the SBA modified that threshold to 5% of an industry’s work force.

Businesses meeting these criteria--which makes them a “major source of employment”--can receive unlimited loans if the money is needed to remain open or to reopen. The program is intended to avoid substantial unemployment in a disaster area.

The interest rate can be as low as 4% and the loans can be repaid over a period as long as 30 years. The business must have exhausted all of its own money and available credit to be eligible for a loan of more than $1.5 million.

The revised regulation was made retroactive to cover any disaster since Jan. 1. It will apply to future disasters that qualify for SBA assistance.

The magnitude 6.8 quake inflicted major losses on inventory and serious structural damage to thousands of businesses throughout the Los Angeles region. Business representatives, municipal officials and legislators had sought to ease the requirements for higher loans.

Bernard Kulik, assistant SBA administrator for disaster assistance, said that the change reflects “recognition of the fact that the 1,000 limit was rather high.” He said the issue was brought to the attention of SBA Administrator Erskine B. Bowles by various businesses.

Kulik said he did not know how many additional companies will be eligible for the larger loans or how many would apply for them. But he described the number of those seeking aid in the aftermath of the Jan. 17 temblor as “just incredible.”

The SBA has received 90,000 applications for loans from businesses and homeowners, and the numbers continue to rise. The agency was given lending authority of more than $1.1 billion in the emergency aid bill passed by Congress.