[Code of Federal Regulations]
[Title 13, Volume 1]
[Revised as of January 1, 2006]
From the U.S. Government Printing Office via GPO Access
[CITE: 13CFR123]
[Page 341-361]
TITLE 13--BUSINESS CREDIT AND ASSISTANCE
CHAPTER I--SMALL BUSINESS ADMINISTRATION
PART 123_DISASTER LOAN PROGRAM
Subpart A_Overview
Sec.
123.1 What do these rules cover?
123.2 What are disaster loans and disaster declarations?
123.3 How are disaster declarations made?
123.4 What is a disaster area and why is it important?
123.5 What kinds of loans are available?
123.6 What does SBA look for when considering a disaster loan applicant?
123.7 Are there restrictions on how disaster loans can be used?
123.8 Does SBA charge any fees for obtaining a disaster loan?
123.9 What happens if I don't use loan proceeds for the intended
purpose?
123.10 What happens if I cannot use my insurance proceeds to make
repairs?
123.11 Does SBA require collateral for any of its disaster loans?
123.12 Are books and records required?
[[Page 342]]
123.13 What happens if my loan application is denied?
123.14 How does the Federal Debt Collection Procedures Act of 1990
apply?
123.15 What if I change my mind?
123.16 How are loans administered and serviced?
123.17 Do other Federal requirements apply?
123.18 Can I request an increase in the amount of a physical disaster
loan?
123.19 May I request an increase in the amount of an economic injury
loan?
123.20 How long do I have to request an increase in the amount of a
physical disaster loan or an economic injury loan?
123.21 What is a mitigation measure?
Subpart B_Home Disaster Loans
123.100 Am I eligible to apply for a home disaster loan?
123.101 When am I not eligible for a home disaster loan?
123.102 What circumstances would justify my relocating?
123.103 What happens if I am forced to move from my home?
123.104 What interest rate will I pay on my home disaster loan?
123.105 How much can I borrow with a home disaster loan and what limits
apply on use of funds and repayment terms?
123.106 What is eligible refinancing?
123.107 How much can I borrow for post-disaster mitigation for my home?
Subpart C_Physical Disaster Business Loans
123.200 Am I eligible to apply for a physical disaster business loan?
123.201 When am I not eligible to apply for a physical disaster business
loan?
123.202 How much can my business borrow with a physical disaster
business loan?
123.203 What interest rate will my business pay on a physical disaster
business loan and what are the repayment terms?
123.204 How much can your business borrow for post-disaster mitigation?
Subpart D_Economic Injury Disaster Loans
123.300 Is my business eligible to apply for an economic injury disaster
loan?
123.301 When would my business not be eligible to apply for an economic
injury disaster loan?
123.302 What is the interest rate on an economic injury disaster loan?
123.303 How can my business spend my economic injury disaster loan?
Subpart E_Pre-Disaster Mitigation Loans
123.400 What is the Pre-Disaster Mitigation Loan Program?
123.401 What types of mitigating measures can your business include in
an application for a pre-disaster mitigation loan?
123.402 Can your business include its relocation as a mitigation measure
in an application for a pre-disaster mitigation loan?
123.403 When is your business eligible to apply for a pre-disaster
mitigation loan?
123.404 When is your business ineligible to apply for a pre-disaster
mitigation loan?
123.405 How much can your business borrow with a pre-disaster mitigation
loan?
123.406 What is the interest rate on a pre-disaster mitigation loan?
123.407 When does your business apply for a pre-disaster mitigation loan
and where does your business get the application?
123.408 How does your business apply for a pre-disaster mitigation loan?
123.409 Which pre-disaster mitigation loan requests will SBA consider
for funding?
123.410 Which loan requests will SBA fund?
123.411 What if SBA determines that your business loan request meets the
selection criteria of Sec. 123.409 but SBA is unable to fund
it because SBA has already allocated all program funds?
123.412 What happens if SBA declines your business' pre-disaster loan
request?
Subpart F_Military Reservist Economic Injury Disaster Loans
123.500 Definitions.
123.501 When is your business eligible to apply for a Military Reservist
Economic Injury Disaster Loan (EIDL)?
123.502 When is your business ineligible to apply for a Military
Reservist EIDL?
123.503 When can you apply for a Military Reservist EIDL?
123.504 How do you apply for a Military Reservist EIDL?
123.505 What if you are both an essential employee and the owner of the
small business and you started active duty before applying for
a Military Reservist EIDL?
123.506 How much can you borrow under the Military Reservist EIDL
Program?
123.507 Under what circumstances will SBA consider waiving the $1.5
million loan limit?
123.508 How can you use Military Reservist EIDL funds?
123.509 What can't you use Military Reservist EIDL funds for?
123.510 What if you don't use your Military Reservist EIDL funds as
authorized?
123.511 How will SBA disburse Military Reservist EIDL funds?
[[Page 343]]
123.512 What is the interest rate on a Military Reservist EIDL?
Subpart G_Economic Injury Disaster Loans as a Result of the September
11, 2001 Terrorist Attacks
123.600 Are economic injury disaster loans under this subpart limited to
the geographic areas contiguous to the declared disaster
areas?
123.601 Is my business eligible to apply for an economic injury disaster
loan under this subpart?
123.602 When would my business not be eligible to apply for an economic
injury disaster loan under this subpart?
123.603 What is the interest rate on an economic injury disaster loan
under this subpart?
123.604 How can my business spend my economic injury disaster loan under
this subpart?
123.605 How long do I have to apply for a loan under this subpart?
123.606 May I request an increase in the amount of an economic injury
disaster loan under this subpart?
Authority: 15 U.S.C. 634(b)(6), 636(b), 636(c); Pub. L. 102-395, 106
Stat. 1828, 1864; and Pub. L. 103-75, 107 Stat. 739; and Pub. L. 106-50,
113 Stat. 245.
Source: 61 FR 3304, Jan. 31, 1996, unless otherwise noted.
Subpart A_Overview
Sec. 123.1 What do these rules cover?
This part covers the disaster loan programs authorized under the
Small Business Act, 15 U.S.C. 636(b), (c), and (f). Since SBA cannot
predict the occurrence or magnitude of disasters, it reserves the right
to change the rules in this part, without advance notice, by publishing
interim emergency regulations in the Federal Register.
Sec. 123.2 What are disaster loans and disaster declarations?
SBA offers low interest, fixed rate loans to disaster victims,
enabling them to repair or replace property damaged or destroyed in
declared disasters. It also offers such loans to affected small
businesses to help them recover from economic injury caused by such
disasters. Disaster declarations are official notices recognizing that
specific geographic areas have been damaged by floods and other acts of
nature, riots, civil disorders, or industrial accidents such as oil
spills. These disasters are sudden events which cause severe physical
damage, and do not include slower physical occurrences such as shoreline
erosion or gradual land settling. Sudden physical events that cause
substantial economic injury may be disasters even if they do not cause
physical damage to a victim's property. Past examples include ocean
conditions causing significant displacement (major ocean currents) or
closure (toxic algae blooms) of customary fishing waters, as well as
contamination of food or other products for human consumption from
unforeseeable and unintended events beyond the control of the victims.
Sec. 123.3 How are disaster declarations made?
(a) There are four ways in which disaster declarations are issued
which make SBA disaster loans possible:
(1) The President declares a Major Disaster, or declares an
emergency, and authorizes Federal Assistance, including individual
assistance (Assistance to Individuals and Households Program).
(2) If the President declares a Major Disaster limited to public
assistance only, a private nonprofit facility which provides non-
critical services under guidelines of the Federal Emergency Management
Agency (FEMA) must first apply to SBA for disaster loan assistance for
such non-critical services before it could seek grant assistance from
FEMA.
(3) SBA makes a physical disaster declaration, based on the
occurrence of at least a minimum amount of physical damage to buildings,
machinery, equipment, inventory, homes and other property. Such damage
usually must meet the following tests:
(i) In any county or other smaller political subdivision of a State
or U.S. possession, at least 25 homes or 25 businesses, or a combination
of at least 25 homes, businesses, or other eligible institutions, each
sustain uninsured losses of 40 percent or more of the estimated fair
replacement value or pre-disaster fair market value of the damaged
property, whichever is lower; or
(ii) In any such political subdivision, at least three businesses
each sustain
[[Page 344]]
uninsured losses of 40 percent or more of the estimated fair replacement
value or pre-disaster fair market value of the damaged property,
whichever is lower, and, as a direct result of such physical damage, 25
percent or more of the work force in their community would be unemployed
for at least 90 days; and
(iii) The Governor of the State in which the disaster occurred
submits a written request to SBA for a physical disaster declaration by
SBA (OMB Approval No. 3245-0121). This request should be delivered to
the SBA Disaster Area Office serving the region where the disaster
occurred within 60 days of the date of the disaster.
(4) SBA makes an economic injury disaster declaration in response to
a determination of a natural disaster by the Secretary of Agriculture.
(5) SBA makes an economic injury declaration in reliance on a state
certification that at least 5 small business concerns in a disaster area
have suffered substantial economic injury as a result of the disaster
and are in need of financial assistance not otherwise available on
reasonable terms. The state certification must be signed by the
Governor, must specify the county or counties or other political
subdivisions in which the disaster occurred, and must be delivered (with
supporting documentation) to the servicing SBA Disaster Area Office
within 120 days of the disaster occurrence. The Administrator may, in a
case of undue hardship, accept such request after 120 days have expired.
(b) SBA publishes notice of any disaster declaration in the Federal
Register. The published notice will identify the kinds of assistance
available, the date and nature of the disaster, and the deadline and
location for filing loan applications. Additionally, SBA will use the
local media to inform potential loan applicants where to obtain loan
applications and otherwise to assist victims in applying for disaster
loans. SBA will accept applications after the announced deadline only
when SBA determines that the late filing resulted from substantial
causes beyond the control of the applicant.
[61 FR 3304, Jan. 31, 1996, as amended at 64 FR 13667, Mar. 22, 1999; 67
FR 64518, Oct. 21, 2002]
Sec. 123.4 What is a disaster area and why is it important?
Each disaster declaration defines the geographical areas affected by
the disaster. Only those victims located in the declared disaster area
are eligible to apply for SBA disaster loans. When the President
declares a major disaster, the Federal Emergency Management Agency
defines the disaster area. In major disasters, economic injury disaster
loans may be made for victims in contiguous counties or other political
subdivisions, provided, however, that with respect to major disasters
which authorize public assistance only, SBA shall not make economic
injury disaster loans in counties contiguous to the disaster area.
Disaster declarations issued by the Administrator of SBA include
contiguous counties for both physical and economic injury assistance.
Contiguous counties or other political subdivisions are those land areas
which abut the land area of the declared disaster area without
geographic separation other than by a minor body of water, not to exceed
one mile between the land areas of such counties.
[61 FR 3304, Jan. 31, 1996, as amended at 67 FR 64519, Oct. 21, 2002]
Sec. 123.5 What kinds of loans are available?
SBA offers three kinds of disaster loans: physical disaster home
loans, physical disaster business loans, and economic injury business
loans. SBA makes these loans directly or in participation with a
financial institution. If a loan is made in participation with a
financial institution, SBA's share in that loan may not exceed 90
percent.
Sec. 123.6 What does SBA look for when considering a disaster loan
applicant?
There must be reasonable assurance that you can repay your loan out
of your personal or business cash flow, and you must have satisfactory
credit and character. SBA will not make a loan to you if repayment
depends upon the sale of collateral through foreclosure or any other
disposition of assets owned by you. SBA is prohibited by statute from
making a loan to you if you are engaged in the production or
distribution of any product or service
[[Page 345]]
that has been determined to be obscene by a court.
Sec. 123.7 Are there restrictions on how disaster loans can be used?
You must use disaster loans to restore or replace your primary home
(including a mobile home used as a primary residence) and your personal
or business property as nearly as possible to their condition before the
disaster occurred, and within certain limits, to protect damaged or
destroyed real property from possible future similar disasters.
Sec. 123.8 Does SBA charge any fees for obtaining a disaster loan?
SBA does not charge points, closing, or servicing fees on any
disaster loan. You will be responsible for payment of any closing costs
owed to third parties, such as recording fees and title insurance
premiums. If your loan is made in participation with a financial
institution, SBA will charge a guarantee fee to the financial
institution, which then may recover the guarantee fee from you.
Sec. 123.9 What happens if I don't use loan proceeds for the intended
purpose?
(a) When SBA approves each loan application, it issues a loan
authorization which specifies the amount of the loan, repayment terms,
any collateral requirements, and the permitted use of loan proceeds. If
you wrongfully misapply these proceeds, you will be liable to SBA for
one and one-half times the proceeds disbursed to you as of the date SBA
learns of your wrongful misapplication. Wrongful misapplication means
the willful use of any loan proceeds without SBA approval contrary to
the loan authorization. If you fail to use loan proceeds for authorized
purposes for 60 days or more after receiving a loan disbursement check,
such non-use also is considered a wrongful misapplication of the
proceeds.
(b) If SBA learns that you may have misapplied your loan proceeds,
SBA will notify you at your last known address, by certified mail,
return receipt requested. You will be given at least 30 days to submit
to SBA evidence that you have not misapplied the loan proceeds or that
you have corrected any such misapplication. Any failure to respond in
time will be considered an admission that you misapplied the proceeds.
If SBA finds a wrongful misapplication, it will cancel any undisbursed
loan proceeds, call the loan, and begin collection measures to collect
your outstanding loan balance and the civil penalty. You may also face
criminal prosecution or civil or administrative action.
Sec. 123.10 What happens if I cannot use my insurance proceeds to make
repairs?
If you must pay insurance proceeds to the holder of a recorded lien
or encumbrance against your damaged property instead of using them to
make repairs, you may apply to SBA for the full amount needed to make
such repairs. If you voluntarily pay insurance proceeds to a recorded
lienholder, your loan eligibility is reduced by the amount of the
voluntary payment.
Sec. 123.11 Does SBA require collateral for any of its disaster loans?
Generally, SBA will not require that you pledge collateral to secure
a disaster home loan or a physical disaster business loan of $10,000 or
less, or an economic injury disaster loan of $5,000 or less. For loans
larger than these amounts, you will be required to provide available
collateral such as a lien on the damaged or replacement property, a
security interest in personal property, or both.
(a) Sometimes a borrower, including affiliates as defined in part
121 of this title, will have more than one loan after a single disaster.
In deciding whether collateral is required, SBA will add up all physical
disaster loans to see if they exceed $10,000 and all economic injury
disaster loans to see if they exceed $5,000.
(b) SBA will not decline a loan if you lack a particular amount of
collateral as long as it is reasonably sure that you can repay your
loan. If you refuse to pledge available collateral when requested by
SBA, however, SBA may decline or cancel your loan.
[[Page 346]]
Sec. 123.12 Are books and records required?
You must retain complete records of all transactions financed with
your SBA loan proceeds, including copies of all contracts and receipts,
for a period of 3 years after you receive your final disbursement of
loan proceeds. If you have a physical disaster business or economic
injury loan, you must also maintain current and accurate books of
account, including financial and operating statements, insurance
policies, and tax returns. You must retain applicable books and records
for 3 years after your loan matures including any extensions, or from
the date when your loan is paid in full, whichever occurs first. You
must make available to SBA or other authorized government personnel upon
request all such books and records for inspection, audit, and
reproduction during normal business hours and you must also permit SBA
and any participating financial institution to inspect and appraise your
assets. (OMB Approval No. 3245-0110.)
Sec. 123.13 What happens if my loan application is denied?
(a) If SBA denies your loan application, SBA will notify you in
writing and set forth the specific reasons for the denial. Any applicant
whose request for a loan is declined for reasons other than size (not
being a small business) has the right to present information to overcome
the reason or reasons for the decline and to request reconsideration in
writing. (OMB Approval No. 3245-0122.)
(b) Any decline due to size can only be appealed as set forth in
part 121 of this chapter.
(c) Any request for reconsideration must be received by the SBA
office that declined the original application within six months of the
date of the declined notice. After six months, a new loan application is
required.
(d) A request for reconsideration must contain all significant new
information that you rely on to overcome SBA's denial of your original
loan application. Your request for reconsideration of a business loan
application must also be accompanied by current business financial
statements.
(e) If SBA declines your application a second time, you have the
right to appeal in writing to the Area Director's Office. All appeals
must be received by the office that declined the prior reconsideration
within 30 days of the decline action. Your request must state that you
are appealing, and must give specific reasons why the decline action
should be reversed.
(f) The decision of the Area Director is final unless:
(1) The Area Director does not have authority to approve the
requested loan;
(2) The Area Director refers the matter to the Associate
Administrator for Disaster Assistance; or
(3) The Associate Administrator for Disaster Assistance, upon a
showing of special circumstances, requests the Area Director's office to
forward the matter to him or her for final consideration. Special
circumstances may include, but are not limited to, policy
considerations, alleged improper acts by SBA personnel or others in
processing the application, and conflicting policy interpretations
between two Area Offices.
Sec. 123.14 How does the Federal Debt Collection Procedures Act of
1990 apply?
(a) Under the Federal Debt Collection Procedures Act of 1990 (28
U.S.C. 3201(e)), a debtor who owns property which is subject to an
outstanding judgment lien for a debt owed to the United States generally
is not eligible to receive physical and economic injury disaster loans.
The SBA Associate Administrator for Disaster Assistance, or designee,
may waive this restriction as to disaster loans upon a demonstration of
good cause. Good cause means a written representation by you under oath
which convinces SBA that:
(1) The declared disaster was a major contributing factor to the
delinquency which led to the judgment lien, regardless of when the
original debt was incurred; or
(2) The disaster directly prevented you from fulfilling the terms of
an agreement with SBA or any other Federal Government entity to satisfy
its
[[Page 347]]
pre-disaster judgment lien; in this situation, the judgment creditor
must certify to SBA that you were complying with the agreement to
satisfy the judgment lien when the disaster occurred; or
(3) Other circumstances exist which would justify a waiver.
(b) The waiver determination by the Associate Administrator for
Disaster Assistance, or designee, is a final, non-appealable decision.
The granting of a waiver does not include loan approval; a waiver
recipient must then follow normal loan application procedures.
Sec. 123.15 What if I change my mind?
If SBA required you to pledge collateral for your loan, you may
change your mind and rescind your loan pursuant to the Consumer Credit
Protection Act, 15 U.S.C. 1601, and Regulation Z of the Federal Reserve
Board, 12 CFR part 226. Your note and any collateral documents signed by
you will be canceled upon your return of all loan proceeds and your
payment of any interest accrued.
Sec. 123.16 How are loans administered and serviced?
(a) If you obtained your disaster loan from a participating lender,
that lender is responsible for closing and servicing your loan. If you
obtained your loan directly from SBA, your loan will be closed and
serviced by SBA. The SBA rules on servicing are found in part 120 of
this chapter.
(b) If you are unable to pay your SBA loan installments in a timely
manner for reasons substantially beyond your control, you may request
that SBA suspend your loan payments, extend your maturity, or both.
Sec. 123.17 Do other Federal requirements apply?
As a condition of disbursement, you must be in compliance with
certain requirements relating to flood insurance, lead-based paint,
earthquake hazards, coastal barrier islands, and child support
obligations, as set forth in Sec. Sec. 120.170 through 120.175 of this
chapter.
Sec. 123.18 Can I request an increase in the amount of a physical
disaster loan?
SBA will consider your request for an increase in your loan if you
can show that the eligible cost of repair or replacement of damages
increased because of events occurring after the loan approval that were
beyond your control. An eligible cost is one which is related to the
disaster for which SBA issued the original loan. For example, if you
discover hidden damage within a reasonable time after SBA approved your
original disaster loan and before repair, renovation, or reconstruction
is complete, you may request an increase. Or, if applicable building
code requirements were changed since SBA approved your original loan,
you may request an increase in your loan amount.
[63 FR 15072, Mar. 30, 1998]
Sec. 123.19 May I request an increase in the amount of an economic
injury loan?
SBA will consider your request for an increase in the loan amount if
you can show that the increase is essential for your business to
continue and is based on events occurring after SBA approved your
original loan which were beyond your control. For example, delays may
have occurred beyond your control which prevent you from resuming your
normal business activity in a reasonable time frame. Your request for an
increase in the loan amount must be related to the disaster for which
the SBA economic injury disaster loan was originally made.
[63 FR 15072, Mar. 30, 1998]
Sec. 123.20 How long do I have to request an increase in the amount of
a physical disaster loan or an economic injury loan?
You should request a loan increase as soon as possible after you
discover the need for the increase, but not later than two years after
SBA approved your physical disaster or economic injury loan. After two
years, the SBA Associate Administrator for Disaster Assistance (AA/DA)
may waive this limitation after finding extraordinary and unforeseeable
circumstances.
[63 FR 15073, Mar. 30, 1998]
[[Page 348]]
Sec. 123.21 What is a mitigation measure?
A mitigation measure is something done for the purpose of protecting
real and personal property against disaster related damage. You may
implement mitigation measures after a disaster occurs (post-disaster) to
protect against recurring disaster related damage, or before a disaster
occurs (pre-disaster) to protect against future disaster related damage.
Examples of mitigation measures include building retaining walls, sea
walls, grading and contouring land, elevating flood prone structures,
relocating utilities, or retrofitting structures to protect against high
winds, earthquakes, flood, wildfires, or other physical disasters.
Section 123.107 specifically addresses post-disaster mitigation for home
disaster loans, and Sec. 123.204 specifically addresses post-disaster
mitigation for businesses. Sections 123.400 through 123.412 specifically
address pre-disaster mitigation.
[67 FR 62337, Oct. 7, 2002]
Subpart B_Home Disaster Loans
Sec. 123.100 Am I eligible to apply for a home disaster loan?
(a) You are eligible to apply for a home disaster loan if you:
(1) Own and occupy your primary residence and have suffered a
physical loss to your primary residence, personal property, or both; or
(2) Do not own your primary residence, but have suffered a physical
loss to your personal property. Family members sharing a residence are
eligible if they are not dependents of the owners of the residence.
(b) Losses may be claimed only by the owners of the property at the
time of the disaster, and all such losses will be verified by SBA. SBA
will consider beneficial ownership as well as legal title (for real or
personal property) in determining who suffered the loss.
Sec. 123.101 When am I not eligible for a home disaster loan?
You are not eligible for a home disaster loan if:
(a) You have been convicted, during the past year, of a felony
during and in connection with a riot or civil disorder or other declared
disaster;
(b) You acquired voluntarily more than a 50 percent ownership
interest in the damaged property after the disaster, and no contract of
sale existed at the time of the disaster;
(c) Your damaged property can be repaired or replaced with the
proceeds of insurance, gifts or other compensation, including
condemnation awards (with one exception), these amounts must either be
deducted from the amount of the claimed losses or, if received after SBA
has approved and disbursed a loan, must be paid to SBA as principal
payments on your loan. You must notify SBA of any such recoveries
collected after receiving an SBA disaster loan. The one exception
applies to amounts received under the Individuals and Household Program
of the Federal Emergency Management Agency solely to meet an emergency
need pending processing of an SBA loan. In such an event, you must repay
the financial assistance with SBA loan proceeds if it was used for
purposes also eligible for an SBA loan;
(d) SBA determines that you assumed the risk (for example, by not
maintaining flood insurance as required by an earlier SBA disaster loan
when the current loss is also due to flood);
(e) Your damaged property is a secondary home (although if you
rented the property out before the disaster and the property would not
constitute a ``residence'' under the provisions of Section 280A of the
Internal Revenue Code (26 U.S.C. 280A), you may be eligible for a
physical disaster business loan);
(f) Your damaged property is the type of vehicle normally used for
recreational purposes, such as motorhomes, aircraft, and boats;
(g) Your damaged property consists of cash or securities;
(h) The replacement value of your damaged personal property is
extraordinarily high and not easily verified, such as the value of
antiques, artworks, or hobby collections;
(i) You or other principal owners of the damaged property are
presently incarcerated, or on probation or parole following conviction
for a serious criminal offense;
[[Page 349]]
(j) Your only interest in the damaged property is in the form of a
security interest, mortgage, or deed of trust;
(k) The damaged building, including contents, was newly constructed
or substantially improved on or after February 9, 1989, and (without a
significant business justification) is located seaward of mean high tide
or entirely in or over water; or
(l) You voluntarily decide to relocate outside the business area in
which the disaster has occurred, and there are no special or unusual
circumstances leading to your decision (business area means the
municipality which provides general governmental services to your
damaged home or, if not located in a municipality, the county or
equivalent political entity in which your damaged home is located).
[61 FR 3304, Jan. 31, 1996, as amended at 67 FR 64519, Oct. 21, 2002]
Sec. 123.102 What circumstances would justify my relocating?
SBA may approve a loan if you intend to relocate outside the
business area in which the disaster has occurred if your relocation is
caused by such special or unusual circumstances as:
(a) Demonstrable risk that the business area will suffer future
disasters;
(b) A change in employment status (such as loss of job, transfer,
lack of adequate job opportunities within the business area or scheduled
retirement within 18 months after the disaster occurs);
(c) Medical reasons; or
(d) Special family considerations which necessitate a move outside
of the business area.
Sec. 123.103 What happens if I am forced to move from my home?
If you must relocate inside or outside the business area because
local authorities will not allow you to repair your damaged property,
SBA considers this to be a total loss and a mandatory relocation. In
this case, your loan would be an amount that SBA considers sufficient to
replace your residence at your new location, plus funds to cover losses
of personal property and eligible refinancing.
Sec. 123.104 What interest rate will I pay on my home disaster loan?
If you can obtain credit elsewhere, your interest rate is set by a
statutory formula, but will not exceed 8 percent per annum. If you
cannot obtain credit elsewhere, your interest rate is one-half the
statutory rate, but will not exceed 4 percent per annum. Credit
elsewhere means that, with your cash flow and disposable assets, SBA
believes you could obtain financing from non-federal sources on
reasonable terms. If you cannot obtain credit elsewhere, you also may be
able to borrow from SBA to refinance existing recorded liens against
your damaged real property. Under prior legislation, some SBA disaster
loans had split interest rates. On any such loan, repayments of
principal are applied first to that portion of the loan with the lowest
interest rate.
Sec. 123.105 How much can I borrow with a home disaster loan and what
limits apply on use of funds and repayment terms?
(a) For all disasters occurring on or after October 26, 1993, there
are limits on how much money you can borrow for particular purposes:
(1) $40,000 for repair or replacement of household and personal
effects;
(2) $200,000 for repair or replacement of a primary residence
(including upgrading in order to meet minimum standards of safety and
decency or current building code requirements). Repair or replacement of
landscaping and/or recreational facilities cannot exceed $5,000;
(3) $200,000 for eligible refinancing purposes; and
(4) 20 percent of the loan amount (not including refinancing) up to
a maximum of $48,000 for mitigation (see Sec. 123.107).
(b) You may not use loan proceeds to repay any debts on personal
property, secured or unsecured, unless you incurred those debts as a
direct result of the disaster.
(c) SBA determines the loan maturity and repayment terms based on
your needs and your ability to pay. Generally, you will pay equal
monthly installments of principal and interest, beginning five months
from the date of
[[Page 350]]
the loan, as shown on the Note securing the loan. SBA will consider
other payment terms if you have seasonal or fluctuating income, and SBA
may allow installment payments of varying amounts over the first two
years of the loan. The maximum maturity for a home disaster loan is 30
years. There is no penalty for prepayment of home disaster loans.
Sec. 123.106 What is eligible refinancing?
(a) If your home (primary residence) is totally destroyed or
substantially damaged, and you do not have credit elsewhere, SBA may
allow you to borrow money to refinance recorded liens or encumbrances on
your home. Your home is totally destroyed or substantially damaged if it
has suffered uninsured or otherwise uncompensated damage which, at the
time of the disaster, is either:
(1) 40 percent or more of the home's market value or replacement
cost at the time of the disaster, including land value, whichever is
less; or
(2) 50 percent or more of its market value or replacement cost at
the time of the disaster, not including land value, whichever is less.
(b) Your home disaster loan for refinancing existing liens or
encumbrances cannot exceed an amount equal to the lesser of $200,000, or
the physical damage to your primary residence after reductions for any
insurance or other recovery.
Sec. 123.107 How much can I borrow for post-disaster mitigation for my
home?
For mitigation measures implemented after a disaster has occurred,
you can borrow the lesser of the cost of the mitigation measure, or up
to 20 percent of the amount of your approved home disaster loan to
repair or replace your damaged primary residence and personal property.
[67 FR 62337, Oct. 7, 2002]
Subpart C_Physical Disaster Business Loans
Sec. 123.200 Am I eligible to apply for a physical disaster business
loan?
(a) Almost any business concern or charitable or other non-profit
entity whose real or tangible personal property is damaged in a declared
disaster area is eligible to apply for a physical disaster business
loan. Your business may be a sole proprietorship, partnership,
corporation, limited liability company, or other legal entity recognized
under State law. Your business' size (average annual receipts or number
of employees) is not taken into consideration in determining your
eligibility for a physical disaster business loan. If your damaged
business occupied rented space at the time of the disaster, and the
terms of your business' lease require you to make repairs to your
business' building, you may have suffered a physical loss and can apply
for a physical business disaster loan to repair the property. In all
other cases, the owner of the building is the eligible loan applicant.
(b) Damaged vehicles, of the type normally used for recreational
purposes, such as motorhomes, aircraft, and boats, may be repaired or
replaced with SBA loan proceeds if you can submit evidence that the
damaged vehicles were used in your business at the time of the disaster.
Sec. 123.201 When am I not eligible to apply for a physical disaster
business loan?
(a) You are not eligible for a physical disaster business loan if
your business is an agricultural enterprise or if you (or any principal
of the business) fit into any of the categories in Sec. 123.101.
Agricultural enterprise means a business primarily engaged in the
production of food and fiber, ranching and raising of livestock,
aquaculture and all other farming and agriculture-related industries.
(b) Sometimes a damaged business entity (whether in the form of a
corporation, limited liability company, partnership, or sole
proprietorship) is engaged in both agricultural enterprise and a non-
agricultural business venture. If the agricultural enterprise part
[[Page 351]]
of your business entity has suffered a physical disaster, that
enterprise is not eligible for SBA physical disaster assistance. If the
non-agricultural business venture of your entity has suffered physical
disaster damage, that part of your business operation would be eligible
for SBA physical disaster assistance. If both the agricultural
enterprise part and the non-agricultural business venture have incurred
physical disaster damage, only the non-agricultural business venture of
your business entity would be eligible for SBA physical disaster
assistance.
(c) If your business is going to relocate voluntarily outside the
business area in which the disaster occurred, you are not eligible for a
physical disaster business loan. If, however, the relocation is due to
uncontrollable or compelling circumstances, SBA will consider the
relocation to be involuntary and eligible for a loan. Such circumstances
may include, but are not limited to:
(1) The elimination or substantial decrease in the market for your
products or services, as a consequence of the disaster;
(2) A change in the demographics of your business area within 18
months prior to the disaster, or as a result of the disaster, which
makes it uneconomical to continue operations in your business area;
(3) A substantial change in your cost of doing business, as a result
of the disaster, which makes the continuation of your business in the
business area not economically viable;
(4) Location of your business in a hazardous area such as a special
flood hazard area or an earthquake-prone area;
(5) A change in the public infrastructure in your business area
which occurred within 18 months or as a result of the disaster that
would result in substantially increased expenses for your business in
the business area;
(6) Your implementation of decisions adopted and at least partially
implemented within 18 months prior to the disaster to move your business
out of the business area; and
(7) Other factors which undermine the economic viability of your
business area.
(d) You are not eligible if your business is engaged in any illegal
activity.
(e) You are not eligible if you are a government owned entity
(except for a business owned or controlled by a Native American tribe).
(f) You are not eligible if your business presents live performances
of a prurient sexual nature or derives directly or indirectly more than
de minimis gross revenue through the sale of products or services, or
the presentation of any depictions or displays, of a prurient sexual
nature.
[61 FR 3304, Jan. 31, 1996, as amended at 62 FR 35337, July 1, 1997; 63
FR 46644, Sept. 2, 1998]
Sec. 123.202 How much can my business borrow with a physical disaster
business loan?
(a) Disaster business loans, including both physical disaster and
economic injury loans to the same borrower, together with its
affiliates, cannot exceed the lesser of the uncompensated physical loss
and economic injury or $1.5 million. Physical disaster loans may include
amounts to meet current building code requirements. If your business is
a major source of employment, SBA may waive the $1.5 million limitation.
A major source of employment is a business concern which has one or more
locations in the disaster area which:
(1) Employed 10 percent or more of the entire work force within the
commuting area of a geographically identifiable community (no larger
than a county), provided that the commuting area does not extend more
than 50 miles from such community; or
(2) Employed 5 percent of the work force in an industry within the
disaster area and, if the concern is a non-manufacturing concern,
employed no less than 50 employees in the disaster area, or if the
concern is a manufacturing concern, employed no less than 150 employees
in the disaster area; or
(3) Employed no less than 250 employees within the disaster area.
(b) SBA will consider waiving the $1.5 million loan limit only if:
(1) Your damaged location or locations are out of business or in
imminent danger of going out of business as a result of the disaster,
and a loan in
[[Page 352]]
excess of $1.5 million is necessary to reopen or keep open the damaged
locations in order to avoid substantial unemployment in the disaster
area; and
(2) You have used all reasonably available funds from your business,
its affiliates and its principal owners (20% or greater ownership
interest) and all available credit elsewhere (as described in Sec.
123.104) to alleviate your physical damage and economic injury.
(c) Physical disaster business borrowers may request refinancing of
liens on both damaged real property and machinery and equipment, but for
an amount reduced by insurance or other compensation. To do so, your
business property must be totally destroyed or substantially damaged,
which means:
(1) 40 percent or more of the aggregate value (lesser of market
value or replacement cost at the time of the disaster) of the damaged
real property (including land) and damaged machinery and equipment; or
(2) 50 percent or more of the aggregate value (lesser of market
value or replacement cost at the time of the disaster) of the damaged
real property (excluding land) and damaged machinery and equipment.
(d) Loan funds allocated for repair or replacement of landscaping or
recreational facilities may not exceed $5,000 unless the landscaping or
recreational facilities fulfilled a functional need or contributed to
the generation of business.
[61 FR 3304, Jan. 31, 1996, as amended at 63 FR 46644, Sept. 2, 1998]
Sec. 123.203 What interest rate will my business pay on a physical
disaster business loan and what are the repayment terms?
(a) SBA will announce interest rates with each disaster declaration.
If your business, together with its affiliates and principal owners,
have credit elsewhere, your interest rate is set by a statutory formula,
but will not exceed 8 percent per annum. If you do not have credit
elsewhere, your interest rate will not exceed 4 percent per annum. The
maturity of your loan depends upon your repayment ability, but cannot
exceed 3 years if you have credit elsewhere. Otherwise, the maximum
maturity is 30 years.
(b) Generally, you must pay equal monthly installments, of principal
and interest, beginning five months from the date of the loan as shown
on the Note. SBA will consider other payment terms if you have seasonal
or fluctuating income, and SBA may allow installment payments of varying
amounts over the first two years of the loan. There is no penalty for
prepayment for disaster loans.
Sec. 123.204 How much can your business borrow for post-disaster
mitigation?
For mitigation measures implemented after a disaster has occurred,
you can borrow the lesser of the cost of the mitigation measure, or up
to 20 percent of the amount of your approved physical disaster business
loan to repair or replace your damaged business real estate and other
business assets.
[67 FR 62337, Oct. 7, 2002]
Subpart D_Economic Injury Disaster Loans
Sec. 123.300 Is my business eligible to apply for an economic injury
disaster loan?
(a) If your business is located in a declared disaster area, and
suffered substantial economic injury as a direct result of a declared
disaster, you are eligible to apply for an economic injury disaster
loan.
(1) Substantial economic injury is such that a business concern is
unable to meet its obligations as they mature or to pay its ordinary and
necessary operating expenses.
(2) Loss of anticipated profits or a drop in sales is not considered
substantial economic injury for this purpose.
(b) Economic injury disaster loans are available only if you were a
small business (as defined in part 121 of this chapter) when the
declared disaster commenced (except disaster declarations for Hurricanes
Katrina, Rita, and Wilma, for which size status is determined as of the
date SBA accepts the application for processing, and for applications
submitted before December 6, 2005, whether denied because of size status
or pending, such applications shall be deemed resubmitted on December 6,
2005), you and your affiliates and
[[Page 353]]
principal owners (20% or more ownership interest) have used all
reasonably available funds, and you are unable to obtain credit
elsewhere (see Sec. 123.104).
(c) Eligible businesses do not include agricultural enterprises, but
do include--
(1) Small nurseries affected by a drought disaster designated by the
Secretary of Agriculture (nurseries are commercial establishments
deriving 50 percent or more of their annual receipts from the production
and sale of ornamental plants and other nursery products, including, but
not limited to, bulbs, florist greens, foliage, flowers, flower and
vegetable seeds, shrubbery, and sod);
(2) Small agricultural cooperatives; and
(3) Producer cooperatives.
[61 FR 3304, Jan. 31, 1996, as amended at 67 FR 11880, Mar. 15, 2002; 70
FR 72595, Dec. 6, 2005]
Sec. 123.301 When would my business not be eligible to apply for an
economic injury disaster loan?
Your business is not eligible for an economic disaster loan if you
(or any principal of the business) fit into any of the categories in
Sec. Sec. 123.101 and 123.201, or if your business is:
(a) Engaged in lending, multi-level sales distribution, speculation,
or investment (except for real estate investment with property held for
rental when the disaster occurred);
(b) A non-profit or charitable concern;
(c) A consumer or marketing cooperative;
(d) Not a small business concern; or
(e) Deriving more than one-third of gross annual revenue from legal
gambling activities;
(f) A loan packager which earns more than one-third of its gross
annual revenue from packaging SBA loans;
(g) Principally engaged in teaching, instructing, counseling, or
indoctrinating religion or religious beliefs, whether in a religious or
secular setting; or
(h) Primarily engaged in political or lobbying activities.
[61 FR 3304, Jan. 31, 1996, as amended at 63 FR 46644, Sept. 2, 1998]
Sec. 123.302 What is the interest rate on an economic injury disaster
loan?
Your economic injury loan will have an interest rate of 4 percent
per annum or less.
Sec. 123.303 How can my business spend my economic injury disaster
loan?
(a) You can only use the loan proceeds for working capital necessary
to carry your concern until resumption of normal operations and for
expenditures necessary to alleviate the specific economic injury, but
not to exceed that which the business could have provided had the injury
not occurred.
(b) Loan proceeds may not be used to:
(1) Refinance indebtedness which you incurred prior to the disaster
event;
(2) Make payments on loans owned by another federal agency
(including SBA) or a Small Business Investment Company licensed under
the Small Business Investment Act;
(3) Pay, directly or indirectly, any obligations resulting from a
federal, state or local tax penalty as a result of negligence or fraud,
or any non-tax criminal fine, civil fine, or penalty for non-compliance
with a law, regulation, or order of a federal, state, regional, or local
agency or similar matter;
(4) Repair physical damage; or
(5) Pay dividends or other disbursements to owners, partners,
officers or stockholders, except for reasonable remuneration directly
related to their performance of services for the business.
Subpart E_Pre-Disaster Mitigation Loans
Source: 67 FR 62337, Oct. 7, 2002, unless otherwise noted.
Sec. 123.400 What is the Pre-Disaster Mitigation Loan Program?
The Pre-Disaster Mitigation Loan Program allows SBA to make low
interest, fixed rate loans to small businesses for the purpose of
implementing mitigation measures to protect their commercial real
property (building) or leasehold improvements or contents from disaster
related damage. This program supports the Federal Emergency Management
Agency (FEMA's) Pre-
[[Page 354]]
Disaster Mitigation Program. This pilot program is authorized for 5
fiscal years (October--September), from 2000 through 2004, and has only
been approved for limited funding. Therefore, approved loan requests are
funded on a first come, first served basis up to the limit of program
funds available (see Sec. 123.411).
Sec. 123.401 What types of mitigation measures can your business
include in an application for a pre-disaster mitigation loan?
To be included in a pre-disaster mitigation loan application, each
of your business' mitigation measures must satisfy the following
criteria:
(a) The mitigation measure, as described in the application, must
serve the purpose of protecting your commercial real property (building)
or leasehold improvements or contents from damage that may be caused by
future disasters; and
(b) The mitigation measure must conform to the priorities and goals
of the State or local government's mitigation plan for the community in
which the business subject to the measure is located. To show that this
factor is satisfied your business must submit to SBA, as a part of your
complete application, a written statement from a State or local
emergency management coordinator confirming this fact (see Sec.
123.408). Contact your regional FEMA office for a list of your State's
emergency management coordinators or visit the FEMA Web site at http://
www.fema.gov.
Sec. 123.402 Can your business include its relocation as a mitigation
measure in an application for a pre-disaster mitigation loan?
Yes, you may request a pre-disaster mitigation loan for the
relocation of your business if:
(a) Your commercial real property (building) is located in a SFHA
(Special Flood Hazard Area); and
(b) Your business relocates outside the SFHA but remains in the same
participating pre-disaster mitigation community. Contact your regional
FEMA office for a listing of communities participating in the Pre-
Disaster Mitigation Program and SFHAs or visit the FEMA Web site at
http://www.fema.gov.
Sec. 123.403 When is your business eligible to apply for a pre-
disaster mitigation loan?
To be eligible to apply for a pre-disaster mitigation loan your
business must meet each of the following criteria:
(a) Your business, which is the subject of the pre-disaster
mitigation measure, must be located in a participating pre-disaster
mitigation community. Each State, the District of Columbia, Puerto Rico,
and the Virgin Islands have at least one participating pre-disaster
mitigation community. Contact your regional FEMA office to find out the
locations of participating pre-disaster mitigation communities or visit
the FEMA Web site at http://www.fema.gov.;
(b) If your business is proposing a mitigation measure that protects
against a flood hazard, the location of your business which is the
subject of the mitigation measure must be located in a Special Flood
Hazard Area (SFHA). Contact your FEMA regional office to find out the
locations of SFHAs or visit the FEMA Web site at http://www.fema.gov.;
(c) As of the date your business submits a complete Pre-Disaster
Mitigation Small Business Loan Application to SBA (see Sec. 123.408 for
what SBA's considers to be a complete application), your business, along
with its affiliates, must be a small business concern as defined in part
121 of this chapter. The definition of small business concern
encompasses sole proprietorships, partnerships, corporations, limited
liability entities, and other legal entities recognized under State law;
(d) Your business, which is the subject of the mitigation measure,
must have operated as a business in its present location for at least
one year before submitting its application;
(e) Your business, along with its affiliates and owners, must not
have the financial resources to fund the proposed mitigation measures
without undue hardship. SBA makes this determination based on the
information your business submits as a part of its application; and
(f) If your business is owning and leasing out real property, the
mitigation measures must be for protection of
[[Page 355]]
a building leased primarily for commercial rather than residential
purposes (SBA will determine this based upon a comparative square
footage basis).
Sec. 123.404 When is your business ineligible to apply for a pre-
disaster mitigation loan?
Your business is ineligible to apply for a pre-disaster mitigation
loan if your business (including its affiliates) satisfies any of the
following conditions:
(a) Any of your business' principal owners is presently
incarcerated, or on probation or parole following conviction of a
serious criminal offense, or has been indicted for a felony or a crime
of moral turpitude;
(b) Your business' only interest in the business property is in the
form of a security interest, mortgage, or deed of trust;
(c) The building, which is the subject of the mitigation measure,
was newly constructed or substantially improved on or after February 9,
1989, and (without significant business justification) is located
seaward of mean high tide or entirely in or over water;
(d) Your business is an agricultural enterprise. Agricultural
enterprise means a business primarily engaged (see Sec. 121.107 of this
chapter) in the production of food and fiber, ranching and raising of
livestock, aquaculture and all other farming and agriculture-related
industries. Sometimes a business is engaged in both agricultural and
non-agricultural business activities. If the primary business activity
of your business is not an agricultural enterprise, it may apply for a
pre-disaster mitigation loan, but loan proceeds may not be used,
directly or indirectly, for the benefit of the agricultural activities;
(e) Your business is engaged in any illegal activity;
(f) Your business is a government owned entity (except for a
business owned or controlled by a Native American tribe);
(g) Your business presents live performances of a prurient sexual
nature or derives directly or indirectly more than de minimis gross
revenue through the sale of products or services, or the presentation of
any depictions or displays, of a prurient sexual nature;
(h) Your business engages in lending, multi-level sales
distribution, speculation, or investment (except for real estate
investment with property held for commercial rental);
(i) Your business is a non-profit or charitable concern;
(j) Your business is a consumer or marketing cooperative;
(k) Your business derives more than one-third of its gross annual
revenue from legal gambling activities;
(l) Your business is a loan packager that earns more than one-third
of its gross annual revenue from packaging SBA loans;
(m) Your business principally engages in teaching, instructing,
counseling, or indoctrinating religion or religious beliefs, whether in
a religious or secular setting; or
(n) Your business is primarily engaged in political or lobbying
activities.
Sec. 123.405 How much can your business borrow with a pre-disaster
mitigation loan?
Your business, together with its affiliates, may borrow up to
$50,000 each fiscal year. This loan amount may be used to fund only
those projects that were a part of your business' approved loan request.
SBA will consider mitigation measures costing more than $50,000 per year
if your business can identify, as a part of its Pre-Disaster Mitigation
Small Business Loan Application, sources that will fund the cost above
$50,000.
Sec. 123.406 What is the interest rate on a pre-disaster mitigation
loan?
The interest rate on a pre-disaster mitigation loan will be fixed at
4 percent per annum or less. The exact interest rate will be stated in
the Federal Register notice announcing each filing period (see Sec.
123.407).
Sec. 123.407 When does your business apply for a pre-disaster
mitigation loan and where does your business get an
application?
SBA will publish a notice in the Federal Register announcing the
availability of pre-disaster mitigation loans. The notice will designate
a 30-
[[Page 356]]
day application filing period with a specific opening date and filing
deadline, as well as the locations for obtaining and filing loan
applications. In addition to the Federal Register, SBA will coordinate
with FEMA, and will issue press releases to the local media to inform
potential loan applicants where to obtain loan applications. SBA will
not accept any applications postmarked after the filing deadline;
however, SBA may announce additional application periods each year
depending on the availability of program funds.
Sec. 123.408 How does your business apply for a pre-disaster
mitigation loan?
To apply for a pre-disaster mitigation loan your business must
submit a complete Pre-Disaster Mitigation Small Business Loan
Application (application) within the announced filing period. Complete
applications mailed to SBA and postmarked within the announced filing
period will be accepted. The complete application serves as your
business' loan request. A complete application supplies all of the
filing requirements specified on the application form including a
written statement from the local or State coordinator confirming:
(a) The business that is the subject of the mitigation measure is
located within the participating pre-disaster mitigation community; and
(b) The mitigation measure is in accordance with the specific
priorities and goals of the local participating pre-disaster mitigation
community in which the business is located. (The local or State
coordinator's written statement does not constitute an endorsement or
technical approval of the project and is not a guarantee that the
project will prevent damage in future disasters).
Sec. 123.409 Which pre-disaster mitigation loan requests will SBA
consider for funding?
(a) SBA will consider a loan request for funding if, after reviewing
a complete application, SBA determines that it meets the following
selection criteria:
(1) Your business satisfies the requirements of Sec. Sec. 123.401,
123.402 and 123.403;
(2) None of the conditions specified in Sec. 123.404 apply to your
business, its affiliates, or principal owners;
(3) Your business has submitted a reasonable cost estimate for the
proposed mitigation measure and has chosen to undertake a mitigation
measure that is likely to accomplish the desired mitigation result
(SBA's determination of this point is not a guaranty that the project
will prevent damage in future disasters);
(4) Your business is creditworthy; and
(5) There is a reasonable assurance of loan repayment in accordance
with the terms of a loan agreement.
(b) SBA will notify you in writing if your loan request does not
meet the criteria in this section.
Sec. 123.410 Which loan requests will SBA fund?
SBA will date stamp each application (loan request) as it is
received. SBA will fund loan requests which meet the selection criteria
specified in Sec. 123.409 on a first come, first served basis using
this date stamp, until it has allocated all available program funds.
Multiple applications received on the same day will be ranked by a
computer based random selection system to determine their funding order.
SBA will notify you in writing of its funding decision.
Sec. 123.411 What if SBA determines that your business loan request
meets the selection criteria of Sec. 123.409 but SBA is
unable to fund it because SBA has already allocated all
program funds?
If SBA determines that your business' loan request meets the
selection criteria of Sec. 123.409 but we are unable to fund it because
we have already allocated all available program funds, your request will
be given priority status, based on the original acceptance date, once
more program funds become available. However, if more than 6 months pass
since SBA determined to fund your request, SBA may request updated or
additional financial information.
[[Page 357]]
Sec. 123.412 What happens if SBA declines your business' pre-disaster
mitigation loan request?
If SBA declines your business' loan request, SBA will notify your
business in writing giving specific reasons for decline. If your
business disagrees with SBA's decision, it may respond in accordance
with Sec. 123.13. If SBA reverses its decision, SBA will use the date
it received your business' last request for reconsideration or appeal as
the basis for determining the order of funding.
Subpart F_Military Reservist Economic Injury Disaster Loans
Source: 66 FR 38530, July 25, 2001, unless otherwise noted.
Sec. 123.500 Definitions.
The following terms have the same meaning wherever they are used in
this subpart:
(a) Essential employee is an individual (whether or not an owner of
a small business) whose managerial or technical expertise is critical to
the successful day-to-day operations of a small business.
(b) Military reservist is a member of a reserve component of the
Armed Forces ordered to active duty during a period of military
conflict.
(c) Period of military conflict means:
(1) A period of war declared by the Congress,
(2) A period of national emergency declared by the Congress or by
the President, or
(3) A period of contingency operation, as defined in 10 U.S.C.
101(a).
(d) Principal owner is a person or entity which owns 20 percent or
more of the small business.
(e) Substantial economic injury means an economic harm to the small
business such that it cannot:
(1) Meet its obligations as they mature,
(2) Pay its ordinary and necessary operating expenses, or
(3) Market, produce or provide a product or service ordinarily
marketed, produced or provided by the business. Loss of anticipated
profits or a drop in sales is not considered substantial economic injury
for this purpose.
Sec. 123.501 When is your business eligible to apply for a Military
Reservist Economic Injury Disaster Loan?
Your business is eligible to apply for a Military Reservist EIDL if:
(a) It is a small business as defined in 13 CFR part 121 when the
essential employee was called to active duty,
(b) The owner of the business is a military reservist and an
essential employee or the business employs a military reservist who is
an essential employee,
(c) The essential employee has been called-up to active military
duty during a period of military conflict existing on or after March 24,
1999,
(d) The business has suffered or is likely to suffer substantial
economic injury as a result of the absence of the essential employee,
and
(e) You and your affiliates and principal owners (20% or more
ownership interest) have used all reasonably available funds, and you
are unable to obtain credit elsewhere (see Sec. 123.104).
[66 FR 38530, July 25, 2001, as amended at 67 FR 64519, Oct. 21, 2002]
Sec. 123.502 When is your business ineligible to apply for a Military
Reservist EIDL?
Your business is ineligible for a Military Reservist EIDL if it,
together with its affiliates, is subject to any of the following
conditions:
(a) Any of your business' principal owners has been convicted,
during the past year, of a felony during and in connection with a riot
or civil disorder;
(b) You have assumed the risk associated with employing the military
reservist, as determined by SBA (for example, hiring the ``essential
employee'' after the employee has received call-up orders or been
notified that they are imminent);
(c) Any of your business' principal owners is presently
incarcerated, or on probation or parole following conviction of a
serious criminal offense;
(d) Your business is an agricultural enterprise. Agricultural
enterprise means a business primarily engaged in the production of food
and fiber, ranching and raising of livestock, aquaculture and all other
farming and agriculture-related industries. (See 13 CFR 121.107, ``How
does SBA determine a
[[Page 358]]
concern's primary industry?'') Sometimes a business is engaged in both
agricultural and non-agricultural business activities. If the primary
business activity of the business is not an agricultural enterprise, it
may apply for a Military Reservist EIDL, but loan proceeds may not be
used, directly or indirectly, for the benefit of the agricultural
enterprises;
(e) Your business is engaged in any illegal activity;
(f) Your business is a government owned entity (except for a
business owned or controlled by a Native American tribe);
(g) Your business presents live performances of a prurient sexual
nature or derives directly or indirectly more than an insignificant
gross revenue through the sale of products or services, or through the
presentation of any depictions or displays, of a prurient sexual nature;
(h) Your business is engaged in lending, multi-level sales
distribution, speculation, or investment (except for real estate
investment with property held for commercial rental);
(i) Your business is a non-profit or charitable concern;
(j) Your business is a consumer or marketing cooperative;
(k) Your business is not a small business concern;
(l) Your business derives more than one-third of its gross annual
revenue from legal gambling activities;
(m) Your business is a loan packager which earns more than one-third
of its gross annual revenue from packaging SBA loans;
(n) Your business' principal activity is teaching, instructing,
counseling, or indoctrinating religion or religious beliefs, whether in
a religious or secular setting; or
(o) Your business' principal activity is political or lobbying
activities.
Sec. 123.503 When can you apply for a Military Reservist EIDL?
Your small business can apply for a Military Reservist EIDL any time
beginning on the date your essential employee receives official call-up
orders and ending 90 days after the date the essential employee is
discharged or released from active duty.
Sec. 123.504 How do you apply for a Military Reservist EIDL?
To apply for a Military Reservist EIDL you must complete a SBA
Military Reservist EIDL application package (SBA Form 5R and supporting
documentation can be obtained through SBA's Disaster Area Office)
including:
(a) A copy of the essential employee's official call-up orders for
active duty showing the date of call up, and if known, the date of
release from active duty;
(b) A statement from the business owner that the reservist is
essential to the successful day-to-day operations of the business
(detailing the employee's duties and responsibilities and explaining why
these duties and responsibilities can't be completed in the essential
employee's absence);
(c) A certification by the essential employee supporting that he or
she concurs with the business owner's statement as described in
paragraph (b) of this section;
(d) A written explanation and financial estimate of how the call-up
of the essential employee has or will result in economic injury to your
business;
(e) The steps your business is taking to alleviate the economic
injury; and
(f) The business owners' certification that the essential employee
will be offered the same or a similar job upon the employee's return
from active duty.
Sec. 123.505 What if you are both an essential employee and the owner
of the small business and you started active duty before
applying for a Military Reservist EIDL?
If you are both an essential employee and the owner of the small
business and you started active duty before applying for an Military
Reservist EIDL, a person who has a power of attorney with the authority
to borrow and make other related commitments on your behalf, may
complete and submit the EIDL loan application package for you.
Sec. 123.506 How much can you borrow under the Military Reservist EIDL
Program?
You can borrow an amount equal to the substantial economic injury
you have suffered or are likely to suffer
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until normal operations resume as a result of the absence of one or more
essential employees called to active duty, up to a maximum of $1.5
million
Sec. 123.507 Under what circumstances will SBA consider waiving the
$1.5 million loan limit?
SBA will consider waiving the $1.5 million dollar limit if you can
certify to the following conditions and SBA approves of such
certification based on the information supplied in your application:
(a) Your small business is a major source of employment. A major
source of employment:
(1) Employs 10 percent or more of the work force within the
commuting area of the geographically identifiable community (no larger
than a county) in which the business employing the essential employee is
located, provided that the commuting area does not extend more than 50
miles from such community; or
(2) Employs 5 percent of the work force in an industry within such
commuting area and, if the small business is a non-manufacturing small
business, employs no less than 50 employees in the same commuting area,
or if the small business is a manufacturing small business, employs no
less than 150 employees in the commuting area; or
(3) Employs no less than 250 employees within such commuting area;
(b) Your small business is in imminent danger of going out of
business as a result of one or more essential employees being called up
to active duty during a period of military conflict, and a loan in
excess of $1.5 million is necessary to reopen or keep open the small
business; and
(c) Your small business has used all reasonably available funds from
the small business, its affiliates, its principal owners and all
available credit elsewhere to alleviate the small business' economic
injury. Credit elsewhere means financing from non-Federal sources on
reasonable terms given your available cash flow and disposable assets
which SBA believes your small business, its affiliates and principal
owners could obtain.
Sec. 123.508 How can you use Military Reservist EIDL funds?
Your small business can use Military Reservist EIDL to:
(a) Meet obligations as they mature,
(b) Pay ordinary and necessary operating expenses, or
(c) Enable the business to market, produce or provide products or
services ordinarily marketed, produced, or provided by the business,
which cannot be done as a result of the essential employee's military
call-up.
Sec. 123.509 What can't you use Military Reservist EIDL funds for?
Your small business can not use Military Reservist EIDL funds for
purposes described in Sec. 123.303(b) (See Sec. 123.303, `` How can my
business spend my economic injury disaster loan?'').
Sec. 123.510 What if you don't use your Military Reservist EIDL funds
as authorized?
If your small business does not use Military Reservist EIDL funds as
authorized by Sec. 123.508, then Sec. 123.9 applies (See Sec. 123.9,
``What happens if I don't use loan proceeds for the intended
purpose?'').
Sec. 123.511 How will SBA disburse Military Reservist EIDL funds?
SBA will disburse your funds in quarterly installments (unless
otherwise specified in your loan authorization agreement) based on a
continued need as demonstrated by comparative financial information. On
or about 30 days before your scheduled fund disbursement, SBA will
request ordinary and usual financial statements (including balance
sheets and profit and loss statements). Based on this information, SBA
will assess your continued need for disbursements under this program.
Upon making such assessment, SBA will notify you of the status of future
disbursements.
Sec. 123.512 What is the interest rate on a Military Reservist EIDL?
The interest rate on a Military Reservist EIDL will be 4 percent per
annum or less. SBA will publish the interest rate quarterly in the
Federal Register.
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Subpart G_Economic Injury Disaster Loans as a Result of the September
11, 2001 Terrorist Attacks
Source: 66 FR 53331, Oct. 22, 2001, unless otherwise noted.
Sec. 123.600 Are economic injury disaster loans under this subpart
limited to the geographic areas contiguous to the declared
disaster areas?
No. Notwithstanding Sec. 123.4, SBA may make economic injury
disaster loans outside the declared disaster areas and the contiguous
geographic areas to small business concerns that have suffered
substantial economic injury as a direct result of the destruction of the
World Trade Center or the damage to the Pentagon on September 11, 2001,
or as a direct result of any related federal action taken between
September 11, 2001 and October 22, 2001.
Sec. 123.601 Is my business eligible to apply for an economic injury
disaster loan under this subpart?
(a) If your business has suffered substantial economic injury as a
direct result of the destruction of the World Trade Center or the damage
to the Pentagon on September 11, 2001, or as a direct result of any
related federal action taken between September 11, 2001 and October 22,
2001, you are eligible to apply for an economic injury disaster loan
under this subpart.
(1) Substantial economic injury is such that a business concern is
unable to meet its obligations as they mature or to pay its ordinary and
necessary operating expenses.
(2) Loss of anticipated profits or a drop in sales is not considered
substantial economic injury for this purpose.
(b) Economic injury disaster loans are available under this subpart
only if you were a small business (as defined in part 121 of this
chapter) on the date SBA accepts your application for processing (and
for applications submitted before March 15, 2002, whether denied or
pending, such applications shall be deemed resubmitted on March 15,
2002, you and your affiliates and principal owners (20% or more
ownership interest) have used all reasonable available funds, and you
are unable to obtain credit elsewhere (see Sec. 123.104).
(c) Eligible businesses do not include agricultural enterprises, but
do include small agricultural cooperatives and producer cooperatives.
[66 FR 53331, Oct. 22, 2001, as amended at 67 FR 11880, Mar. 15, 2002]
Sec. 123.602 When would my business not be eligible to apply for an
economic injury disaster loan under this subpart?
Your business is not eligible for an economic injury disaster loan
under this subpart if you (or any principal of the business) fit into
any of the categories in Sec. Sec. 123.101 and 123.201, or if your
business is:
(a) Engaged in lending, multi-level sales distribution, speculation,
or investment (except for real estate investment with property held for
rental on September 11, 2001);
(b) A non-profit or charitable concern;
(c) A consumer or marketing cooperative;
(d) Not a small business concern; or
(e) Deriving more than one-third of gross annual revenue from legal
gambling activities;
(f) A loan packager which earns more than one-third of its gross
annual revenue from packaging SBA loans;
(g) Principally engaged in teaching, instructing, counseling, or
indoctrinating religion or religious beliefs, whether in a religious or
secular setting; or
(h) Primarily engaged in political or lobbying activities.
Sec. 123.603 What is the interest rate on an economic injury disaster
loan under this subpart?
Your economic injury disaster loan under this subpart will have an
interest rate of 4 percent per annum or less.
Sec. 123.604 How can my business spend my economic injury disaster
loan under this subpart?
(a) You can only use the loan proceeds for working capital necessary
to carry your concern until resumption of normal operations and for
expenditures necessary to alleviate the specific economic injury, but
not to exceed that
[[Page 361]]
which the business could have provided had the injury not occurred.
(b) Loan proceeds may not be used to:
(1) Refinance indebtedness which you incurred prior to September 11,
2001;
(2) Make payments on loans owned by another federal agency
(including SBA) or a Small Business Investment Company licensed under
the Small Business Investment Act;
(3) Pay, directly or indirectly, any obligations resulting from a
federal, state or local tax penalty as a result of negligence or fraud,
or any non-tax criminal fine, civil fine, or penalty for non-compliance
with a law, regulation, or order of a federal, state, regional, or local
agency or similar matter;
(4) Repair physical damage; or
(5) Pay dividends or other disbursements to owners, partners,
officers, or stockholders, except for reasonable remuneration directly
related to their performance of services for the business.
Sec. 123.605 How long do I have to apply for a loan under this
subpart?
You have until January 22, 2002 to apply for a loan under this
subpart. Your application must be postmarked no later than this date.
SBA has the discretion, for good cause, to extend the application
deadline by publication of a notice in the Federal Register.
Sec. 123.606 May I request an increase in the amount of an economic
injury disaster loan under this subpart?
Yes. Notwithstanding Sec. 123.20, you may request an increase in
the amount of an economic injury disaster loan under this subpart not
later than one year after the date SBA approves your initial request.