[Federal Register Volume 61, Number 21 (Wednesday, January 31, 1996)]
[Rules and Regulations]
[Pages 3304-3310]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-1162]



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SMALL BUSINESS ADMINISTRATION
13 CFR Part 123


Disaster Loan Program

AGENCY: Small Business Administration.

ACTION: Final rule.

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SUMMARY: In response to President Clinton's regulatory review 
directive, the Small Business Administration has completed a page-by-
page and line-by-line review of its regulations. As a result, SBA is 
clarifying and streamlining its regulations. This final rule 
reorganizes the entire Part 123 covering the disaster loan program to 
make it clearer and easier to use.

EFFECTIVE DATE: This rule is effective on March 1, 1996.

FOR FURTHER INFORMATION CONTACT: Bernard Kulik, Associate Administrator 
for Disaster Assistance, at (202) 205-6734.

SUPPLEMENTARY INFORMATION: Part 123 of Chapter I, 13 CFR contains 
policies governing the eligibility of disaster victims to obtain low-
cost loans to restore their damaged property to its pre-disaster 
condition. On November 24, 1995, SBA published a proposed rule in the 
Federal Register (60 FR 58014) to reorganize the entire Part 123 to 
make it clearer and easier to use. SBA did not receive any comments in 
response to the proposed rule. Thus, SBA is finalizing that rule 
without any material changes. The rule eliminates references to 
disasters which occurred years ago, and it would eliminate Subpart D--
Persian Gulf Troop Deployment Economic Injury Loans because the 
authority for that loan program has expired. A conversion table 
follows:

------------------------------------------------------------------------
   Existing section            Action                 New section       
------------------------------------------------------------------------
123.1................  Revise...............  123.1                     
123.2................  Revise...............  123.101                   
123.3................  Revise...............  123.3, 123.4, 123.5,      
                                               123.10, 123.101          
123.4................  Revise...............  123.5                     
123.5................  Delete...............  ..........................
123.6................  Revise...............  123.8                     
123.7................  Revise...............  123.3                     
123.8................  Delete...............  ..........................
123.9................  Revise...............  123.101, 123.104, 123.105 
123.10...............  Delete...............  ..........................
123.11...............  Revise...............  123.11                    
123.12...............  Revise...............  123.13                    
123.13...............  Revise...............  123.16, 123.104           
123.14...............  Revise...............  123.101                   
123.15...............  Delete...............  ..........................
123.16...............  Delete...............  ..........................
123.17...............  Revise...............  123.201                   
123.18...............  Revise...............  123.12                    
123.19...............  Revise...............  123.9                     
123.20...............  Delete...............  ..........................
123.21...............  Revise...............  123.100, 123.200          
123.22...............  Revise...............  123.3                     
123.23...............  Revise...............  123.3                     
123.24...............  Revise...............  123.6, 123.7, 123.12,     
                                               123.101, 123.105,        
                                               123.106, 123.107,        
                                               123.201, 123.202         
123.25...............  Revise...............  123.15, 123.105           
123.26...............  Revise...............  123.202, 123.203          
123.27...............  Delete...............  ..........................
123.28...............  Revise...............  123.202                   
123.29...............  Delete...............  ..........................
123.40...............  Delete...............  ..........................
123.41...............  Revise...............  123.14, 123.301, 123.302, 
                                               123.303                  
123.60-69............  Delete...............  ..........................
------------------------------------------------------------------------

Compliance With Executive Orders 12612, 12778, and 12866, the 
Regulatory Flexibility Act (5.U.S.C. 601, et seq.), and the Paperwork 
Reduction Act (44 U.S.C. Ch. 35).

    SBA certifies that this rule does not have a significant economic 
impact on a substantial number of small entities within the meaning of 
Executive Order 12866, or the Regulatory Flexibility Act, 5 U.S.C. 601, 
et seq.
    For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA 
certifies that this rule contains no new reporting or recordkeeping 
requirements.
    For purposes of Executive Order 12612, SBA certifies that this rule 
has no federalism implications warranting preparation of the federalism 
assessment.
    For purposes of Executive Order 12778, SBA certifies that this rule 
is drafted, to the extent practicable, in accordance with the standards 
set forth in Section 2 of that Order.

List of Subjects in 13 CFR Part 123

    Disaster assistance, loan programs--business, Small businesses.

    Pursuant to the authority set forth in sections 5(b)(6), 7(b)(1), 
and 7(c)(6) of the Small Business Act, SBA revises Part 123 of Title 13 
of the Code of Federal Regulations, to read as follows:

PART 123--DISASTER LOAN PROGRAM

Overview

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?
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?

Home Disaster Loans

123.100  Am I eligible to apply for a home disaster loan?
123.101  When am I not eligible to apply 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  What is mitigation?

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 its repayment terms?

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?

[[Page 3305]]

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?

    Authority: 15 U.S.C. 634(b)(6), 636(b), 636(c) and 636(f); Pub. 
L. 102-395, 106 Stat. 1828, 1864; and Pub. L. 103-75, 107 Stat. 739.

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 and authorizes Federal 
assistance, including individual assistance (temporary housing and 
Individual and Family Grant Assistance).
    (2) 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 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.
    (3) SBA makes an economic injury disaster declaration in response 
to a determination of a natural disaster by the Secretary of 
Agriculture.
    (4) 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.
    (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.


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. 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.


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 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. 

[[Page 3306]]



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.


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 

[[Page 3307]]

    (2) The disaster directly prevented you from fulfilling the terms 
of an agreement with SBA or any other Federal Government entity to 
satisfy its 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 Secs. 120.170 through 120.175 of this 
chapter.

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 (OMB Approval No. 3245-
0124)). The one exception applies to amounts received under the 
Individual and Family Grant 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;
    (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).


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. 

[[Page 3308]]



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 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  What is mitigation?

    Mitigation means specific measures taken by you to protect against 
recurring damage in similar future disasters. Examples include 
retaining walls, sea walls, grading and contouring land, relocating 
utilities and modifying structures. The money that you can borrow for 
mitigation is limited to the lesser of the cost of mitigation, or 20 
percent of your loan to repair or replace your damaged primary 
residence and personal property. SBA will not accept a request for a 
loan increase for mitigation filed after final disbursement of your 
original loan unless you can show that your request was late because of 
substantial reasons beyond your control.

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 is engaged in both agricultural 
and non-agricultural business activities. If the primary business 
activity of your damaged business is not an agricultural enterprise, 
you may apply for a physical disaster business loan, but loan proceeds 
may not be used, directly or indirectly, for the benefit of your 
agricultural enterprises, even if they also suffered damage.
    (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 

[[Page 3309]]
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.


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 greater 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 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.


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.

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, 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).
    (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.


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 
Secs. 123.101 and 123.201, or if your business is:
    (a) Engaged in gambling, lending, multi-level sales distribution, 
loan packaging, 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; or
    (d) Not a small business concern.


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: 
    
[[Page 3310]]

    (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.

    Dated: January 19, 1996.
Philip Lader,
Administrator.
[FR Doc. 96-1162 Filed 1-30-96; 8:45 am]
BILLING CODE 8025-01-P