SBA LENDERS
THE U.S. SMALL BUSINESS Administration (SBA) provides loans to build businesses and, what’s less known, to rebuild businesses after disasters.
The large fire in northeastern Minnesota in May has prompted several business owners to seek relief through the SBA. The fire consumed 24,000 acres of land and 45 buildings, most of them vacation homes and cabins.
The SBA offers two types of disaster loans for businesses: physical disaster loans that cover damage to a business’s buildings, property or equipment; and economic injury loans that replace working capital due to an interruption or downturn in business activity. Companies can borrow up to $1.5 million.
As of late June, the SBA had issued four business loans related to the fires in Minnesota in May, says Richard Daigle, a public information officer with SBA Disaster Field Operations Center East, which handles most disasters east of the Mississippi River. It is based in Atlanta.
Overall, 32 people had come in since the fires with questions at the Cook County Courthouse in Grand Marais, which the SBA has used since June 1 as a temporary office to answer questions and accept applications.
“It’s still pretty early in the process,” says Daigle.
Mike Prom, owner of Voyageur Canoe Outfitters, located at the end of the historic Gunflint Trail in Minnesota’s Arrowhead region, was hit with $80,000 in fire damage to five employee cabins.
“They’re all but ash,” says Prom, who’s also assistant chief of the Gunflint Trail Volunteer Fire Department.
A sprinkler system saved the rest of his business, but Prom estimates he?s lost an additional $50,000 to $60,000 in tourism dollars after he and his employees had to evacuate in May. They weren’t allowed back for two weeks.
Prom says he?s recently sent in his application with the SBA.
The process is “pretty straightforward,” he says. But “you have to gather a lot of information,” including three years of personal and business tax returns and articles of incorporation. He hopes to refinance his business mortgage with the SBA, and receive loans for loss of tourism and to rebuild the damaged buildings.
In March businesses affected by severe flooding in Traverse County were also invited to apply for loans.
The SBA offers disaster loans tailored for home owners and renters, who make up about 80 percent of total borrowers, says Daigle. These loans, however, only cover damage to primary residences or rental homes; they do not cover damage to second vacation homes, such as lakeside cabins.
No intermediary
Unlike other SBA loans, SBA disaster loans are handled directly by the federal government, without an intermediary such as a bank.
Federal disaster areas automatically involve the SBA. Areas that don’t meet the threshold of a federal disaster including the lands burned up by the recent fire can instead be declared an SBA disaster area following a request by the governor.
After setting up shop, SBA representatives accept applications, answer questions and ask applicants about their income and credit history, says Daigle. Applications go out the same day they’re dropped off. Later, loss verifiers will visit the business to look at the property, assess the damage, and come up with a figure.
“We try to turn around as quickly as possible,” says Daigle. Applicants can expect a response within two to three weeks.
Businesses borrow at an interest rate of 4 percent, while home owners borrow at 2.875 percent. There are no closing costs. Funds are drawn from the U.S. Treasury, and are sent to borrowers via electronic deposit.
The first $10,000 of a loan is disbursed in unsecured funds. After that, the borrower needs to put up collateral, usually in the form of real estate. The SBA, says Daigle, will not decline a loan for lack of collateral, but it requires a borrower to pledge what is available.
The SBA encourages borrowers to research other sources, such as insurance or grants. “The SBA loan is designed to fill the gap,” says Daigle.
Companies have a five-month grace period from the time the loan begins.
July 30 was the deadline for applications for physical-damage loans from the Minnesota fires in May. March 3, 2008, is the deadline for economic-injury loans from those fires. The date is intentionally scheduled further out to give business owners more time to assess any intangible damage they may have experienced.
Companies can always call 800.659.2955 for information or to apply. SBA staff will stay on the ground until the end of July, unless activity levels stay high, says Daigle. The SBA always announces its departure via a press release, so people won’t be caught off guard or unaware.
Bookings down
Shari Baker says she’s looking into an SBA loan for her own business, Gunflint Pines Resort & Campground, located on Gunflint Lake. She is also president of the Gunflint Trail Association.
“At this point, my possibility of economic loss is still kind of undetermined,” she says.
Her family and employees had to evacuate from May 10 through May 16, when the fire hit. They stayed in Grand Marais until they were cleared to come back.
Because it was unclear when staff could return to reopen the business, tourists who had planned to stay the upcoming weekend didn?t wait around to find out; they found other spots, she says.
Last-minute weekend bookings were down for June. July and August, on the other hand, looked promising, says Baker, who was interviewed by Upsize early in the summer.
The SBA has encouraged her to apply. “I’m seriously considering it. It might help quite a bit.”
Such low-interest loans over longer stretches of time, she says, can “give you a stepping stone through the hard time.”
Though her business suffered no physical damage from the fire, many of her peers lost revenue and in some cases, are still losing revenue due to a public perception that the fire was more widespread than it really was, or that it hasn’t been put out.
As a result there are fewer spontaneous visitors, who instead choose to hold out until later in the summer or even next year, she says. If the trend persists, it may provoke more businesses to seek SBA disaster loans.
“People have incorrectly gotten the picture that the whole area is burned,” says David Seaton, owner of Hungry Jack Canoe Outfitters, also located on the Gunflint Trail.
Though only 1 percent of the forest was affected, “we’ve gotten e-mails from people who should know better that want to know when Seagull Lake is going to be open again. Well, it’s been open for the last month.” Seaton was also interviewed by Upsize early in the summer.
Fearful that any sign of weakness may scare off tourists even more, businesses may be uncomfortable making it public that they are asking for “government assistance,” says Baker.
Seaton says he hasn?t pursued an SBA loan. The fire ? which ended up eight miles from his property has made an economic impact on his business, but not significantly so, he says.
“Bottom line is, the weather is a big factor in our year anyway. And fire is just part of the weather factors, so having a little bit of a slow down period for a while because of a fire is not going to ruin any of us.
Up until right during the fire we were looking like we were going to have a better year than last year. You know, it just won’t be a banner year. C’est la vie. Life goes on. That’s business.”
[contact] Shari Baker, Gunflint Pines Resort & Campground: 218.388.4454; info@gunflintpines.com; www.gunflintpines.com. Mike Prom, Voyageur Canoe Outfitters: 218.388.2224; vco@canoeit.com; www.canoeit.com. David Seaton, Hungry Jack Canoe Outfitters: 800.648.2922; info@hjo.com; www.hjo.com. U.S. Small Business Administration: 800.659.2955
