The U.S. Small Business Administration (“SBA”) has announced that it is waiving the interest rate for the first year on new loans and deferring loan re-payments for 12 months. Therefore, SBA loan borrowers will not be required to make principal payments or interest payments during the first year of the loan. The SBA is automatically applying this benefit to all disaster loan borrowers.
I also want to take this opportunity to address several frequently asked questions I have been getting concerning SBA loans:
Q: Are individual unit owners eligible for SBA loans?
A: Yes, unit owners may apply for up to $200,000.00 to replace or repair real estate not fully covered by insurance or other disaster relief and up to $40,000.00 to repair or replace personal property. It should be noted that SBA loans must be used to pay for disaster-related repairs. SBA loans cannot be used to pay for deferred maintenance items or any upgrades to the property, unless such upgrades are code required.
Q: Can individual unit owners obtain an SBA loan if the unit is not their primary residence?
A: Secondary homes or vacation properties are, generally, not eligible for SBA home or personal property loans. However, qualified rental properties may be eligible for assistance under SBA’s business physical disaster loan program.
Q: Can unit owners obtain an SBA loan if their property is insured?
A: Yes, unit owners may apply for an SBA loan concerning an insured property. However, only uninsured, or otherwise uncompensated disaster losses, are eligible for SBA loans. Therefore, proceeds from insurance coverage on the property will be deducted from the total damage estimate to determine the loan amount. In other words, the SBA will not duplicate benefits.
Q: Do SBA loans cover insurance policy deductibles?
A: Per the SBA customer service department, the SBA does not treat the deductible as an insurance proceed, and the deductible amount can be claimed as part of the total uncompensated disaster loss.
Q: Can an SBA loan be used to pay assessments?
A: Unit owners may borrow funds to cover a one-time assessment by the association for the repair of common areas. The assessment amount is added to the amount borrowed for individual unit repairs. Therefore, the combined loan amount may not exceed $200,000.00 plus up to $40,000.00 for personal property.
Q: What is required to guarantee the loan?
A: In general, applicants must meet the following requirements in order to obtain an SBA loan:
- Credit History – applicants must have a credit history deemed “acceptable” by the SBA.
- Repayment Ability – applicants must demonstrate an ability to repay the loan.
- Collateral – the SBA requires collateral for physical loss loans over $25,000.00. Real estate is the preferred source of collateral, but the SBA will accept other valuable assets as collateral.
Q: What is the downside of an SBA loan?
A: While the SBA offers long-term, low-interest loans that may assist with disaster recover, unit owners and community associations should be aware that these loans may create substantial financial liabilities, which may impact the ability to obtain additional or future financing, if needed.
As a reminder, the application deadline for SBA disaster loans concerning physical property damaged is January 12, 2023.
Joseph E. Adams is a Board Certified Specialist in Condominium and Planned Development Law, and an Office Managing Shareholder with Becker & Poliakoff. Please send your community association legal questions to jadams@beckerlawyers.com. Past editions of the Q&A may be viewed at floridacondohoalawblog.com.