13 CFR part 123 (Disaster Loan Program; annual edition 2021)
Summary
Part 123, Disaster Loan Program, of 13 CFR Ch. I (1–1–21 Edition), the Small Business Administration rules, preceded by Appendix A to Part 121, a Paycheck Protection Program sample Addendum A for an applicant claiming a religious exemption from SBA affiliation rules under 13 CFR 121.103(b)(10). Under § 123.1 the part covers the disaster loan programs authorized under 15 U.S.C. 636(b), (d), and (f), and 15 U.S.C. 657n. Section 123.2 states that SBA offers low interest, fixed rate loans to disaster victims to repair or replace property damaged or destroyed in declared disasters, and loans to affected small businesses to help them recover from economic injury. The contents list subparts including Military Reservist Economic Injury Disaster Loans.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
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Small Business Administration Pt. 123
information it deems necessary to APPENDIX A TO PART 121—PAYCHECK
make an informed decision on the indi- PROTECTION PROGRAM SAMPLE AD-
vidual waiver request. If SBA’s re- DENDUM A
search verifies that no small business
[Sample]
manufacturers or processors exist for
the item, the Director, Office of Gov- ADDENDUM A
ernment Contracting will grant an in-
✓ The Applicant claims an exemption from
dividual, one-time waiver. If a small all SBA affiliation rules applicable to Pay-
business manufacturer or processor is check Protection Program loan eligibility
found for the product in question, the because the Applicant has made a reason-
Associate Administrator will deny the able, good faith determination that the Ap-
request. Either decision represents a plicant qualifies for a religious exemption
final decision by SBA. under 13 CFR 121.103(b)(10), which says that
‘‘[t]he relationship of a faith-based organiza-
[61 FR 3286, Jan. 31, 1996, as amended at 65 tion to another organization is not consid-
FR 30863, May 15, 2000; 78 FR 61132, Oct. 2, ered an affiliation with the other organiza-
2013; 81 FR 34260, May 31, 2016] tion . . . if the relationship is based on a re-
ligious teaching or belief or otherwise con-
§ 121.1205 How is a list of previously stitutes a part of the exercise of religion.’’
granted class waivers obtained? [85 FR 20821, Apr. 15, 2020]
A list of classes of products for which
waivers for the Nonmanufacturer Rule PART 123—DISASTER LOAN
have been granted is maintained in PROGRAM
SBA Web site at: http://www.sba.gov/
aboutsba/sbaprograms/gc/programs/ Subpart A—Overview
gclwaiverslnonmanufacturer.html. A
list of such waivers may also be ob- Sec.
tained by contacting the Office of Gov- 123.1 What do these rules cover?
123.2 What are disaster loans and disaster
ernment Contracting, U.S. Small Busi-
declarations?
ness Administration, 409 3rd Street, 123.3 How are disaster declarations made?
SW., Washington, DC 20416, or the near- 123.4 What is a disaster area and why is it
est SBA Government Contracting Area important?
Office. 123.5 What kinds of loans are available?
123.6 What does SBA look for when consid-
[69 FR 29208, May 21, 2004, as amended at 74 ering a disaster loan applicant?
FR 46313, Sept. 9, 2009] 123.7 Are there restrictions on how dis-
aster loans can be used?
§ 121.1206 How will potential offerors 123.8 Does SBA charge any fees for obtain-
be notified of applicable waivers? ing a disaster loan?
(a) Contracting officers must provide 123.9 What happens if I don’t use loan pro-
written notification to potential ceeds for the intended purpose?
123.10 What happens if I cannot use my in-
offerors of any waivers being applied to
surance proceeds to make repairs?
a specific acquisition, whether it is a 123.11 Does SBA require collateral for any
class waiver or a contract specific of its disaster loans?
waiver. This notification must be pro- 123.12 Are books and records required?
vided at the time a solicitation is 123.13 What happens if my loan application
issued. If the notification is provided is denied?
after a solicitation is issued, the con- 123.14 How does the Federal Debt Collection
tracting officer must provide potential Procedures Act of 1990 apply?
offerors a reasonable amount of addi- 123.15 What if I change my mind?
tional time to respond to the solicita- 123.16 How are loans administered and serv-
iced?
tion. 123.17 Do other Federal requirements apply?
(b) If a contracting officer does not 123.18 Can I request an increase in the
provide notice, and additional reason- amount of a physical disaster loan?
able time for responses when required, 123.19 May I request an increase in the
then the waiver cannot be applied to amount of an economic injury loan?
the solicitation. This applies to both 123.20 How long do I have to request an in-
spaschal on DSKJM0X7X2PROD with CFR
class waivers and individual waivers. crease in the amount of a physical dis-
aster loan or an economic injury loan?
[81 FR 34260, May 31, 2016] 123.21 What is a mitigation measure?
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§ 123.1 13 CFR Ch. I (1–1–21 Edition)
Subpart B—Home Disaster Loans 123.505 What if you are both an essential
employee and the owner of the small
123.100 Am I eligible to apply for a home business and you started active duty be-
disaster loan? fore applying for a Military Reservist
123.101 When am I not eligible for a home EIDL?
disaster loan? 123.506 How much can you borrow under the
123.102 What circumstances would justify Military Reservist EIDL Program?
my relocating? 123.507 Under what circumstances will SBA
123.103 What happens if I am forced to move consider waiving the $2 million loan
from my home? limit?
123.104 What interest rate will I pay on my 123.508 How can you use Military Reservist
home disaster loan? EIDL funds?
123.105 How much can I borrow with a home
123.509 What can’t you use Military Reserv-
disaster loan and what limits apply on
ist EIDL funds for?
use of funds and repayment terms?
123.510 What if you don’t use your Military
123.106 What is eligible refinancing?
Reservist EIDL funds as authorized?
123.107 How much can I borrow for post-dis-
aster mitigation for my home? 123.511 How will SBA disburse Military Re-
123.108 How do the SBA disaster loan pro- servist EIDL funds?
gram and the FEMA grant programs 123.512 What is the interest rate on a Mili-
interact? tary Reservist EIDL?
123.513 Does SBA require collateral on its
Subpart C—Physical Disaster Business Military Reservist EIDL?
Loans
Subpart G [Reserved]
123.200 Am I eligible to apply for a physical
disaster business loan? Subpart H—Immediate Disaster Assistance
123.201 When am I not eligible to apply for Program
a physical disaster business loan?
123.202 How much can my business borrow 123.700 What is the Immediate Disaster As-
with a physical disaster business loan? sistance Program?
123.203 What interest rate will my business 123.701 What is the application procedure
pay on a physical disaster business loan for an IDAP loan?
and what are the repayment terms? 123.702 What are the eligibility require-
123.204 How much can your business borrow ments for an IDAP loan?
for post-disaster mitigation? 123.703 What are the terms of an IDAP loan?
123.704 Are there restrictions on how IDAP
Subpart D—Economic Injury Disaster Loans loan funds may be used?
123.300 Is my business eligible to apply for 123.705 Are there any fees associated with
an economic injury disaster loan? IDAP loans?
123.301 When would my business not be eli- 123.706 What are the requirements for IDAP
gible to apply for an economic injury dis- lenders?
aster loan? AUTHORITY: 15 U.S.C. 632, 634(b)(6), 636(b),
123.302 What is the interest rate on an eco- 636(d), and 657n.
nomic injury disaster loan?
123.303 How can my business spend my eco- SOURCE: 61 FR 3304, Jan. 31, 1996, unless
nomic injury disaster loan? otherwise noted.
Subpart E [Reserved] Subpart A—Overview
Subpart F—Military Reservist Economic § 123.1 What do these rules cover?
Injury Disaster Loans
This part covers the disaster loan
123.500 Definitions. programs authorized under the Small
123.501 Under what circumstances is your Business Act, 15 U.S.C. 636(b), (d), and
business eligible to be considered for a
Military Reservist Economic Injury Dis-
(f); and 15 U.S.C. 657n. Since SBA can-
aster Loan? not predict the occurrence or mag-
123.502 Under what circumstances is your nitude of disasters, it reserves the
business ineligible to be considered for a right to change the rules in this part,
Military Reservist Economic Injury Dis- without advance notice, by publishing
aster Loan? interim emergency regulations in the
123.503 When can you apply for a Military
spaschal on DSKJM0X7X2PROD with CFR
FEDERAL REGISTER.
Reservist EIDL?
123.504 How do you apply for a Military Re- [61 FR 3304, Jan. 31, 1996, as amended at 75
servist EIDL? FR 60597, Oct. 1, 2010]
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Small Business Administration § 123.3
§ 123.2 What are disaster loans and provides non-critical services under
disaster declarations? guidelines of the Federal Emergency
SBA offers low interest, fixed rate Management Agency (FEMA) must
loans to disaster victims, enabling first apply to SBA for disaster loan as-
them to repair or replace property sistance for such non-critical services
damaged or destroyed in declared dis- before it could seek grant assistance
asters. It also offers such loans to af- from FEMA.
fected small businesses to help them (3) SBA makes a physical disaster
recover from economic injury caused declaration, based on the occurrence of
by such disasters. SBA also offers in- at least a minimum amount of physical
terim guaranteed disaster loans, in damage to buildings, machinery, equip-
participation with financial institu- ment, inventory, homes and other
tions, to affected small businesses property. Such damage usually must
(‘‘IDAP loans’’). Disaster declarations meet the following tests:
are official notices recognizing that (i) In any county or other smaller po-
specific geographic areas have been litical subdivision of a State or U.S.
damaged by floods and other acts of na- possession, at least 25 homes or 25 busi-
ture, riots, civil disorders, or industrial nesses, or a combination of at least 25
accidents such as oil spills. These dis- homes, businesses, or other eligible in-
asters are sudden events which cause stitutions, each sustain uninsured
severe physical damage, and do not in- losses of 40 percent or more of the esti-
clude slower physical occurrences such mated fair replacement value or pre-
as shoreline erosion or gradual land disaster fair market value of the dam-
settling. However, for purposes of eco- aged property, whichever is lower; or
nomic injury disaster loans only, they do (ii) In any such political subdivision,
include droughts and below average at least three businesses each sustain
water levels in the Great Lakes or on uninsured losses of 40 percent or more
any body of water in the United States of the estimated fair replacement value
that supports commerce by small busi- or pre-disaster fair market value of the
nesses. Sudden events that cause sub- damaged property, whichever is lower,
stantial economic injury may be disas- and, as a direct result of such physical
ters even if they do not cause physical damage, 25 percent or more of the work
damage to a victim’s property. Past ex- force in their community would be un-
amples include ocean conditions caus- employed for at least 90 days; and
ing significant displacement (major (iii) The Governor of the State in
ocean currents) or closure (toxic algae which the disaster occurred submits a
blooms) of customary fishing waters, written request to SBA for a physical
as well as contamination of food or disaster declaration by SBA (OMB Ap-
other products for human consumption proval No. 3245–0121). This request
from unforeseeable and unintended should be delivered to the Disaster As-
events beyond the control of the vic- sistance Field Operations Center serv-
tims. ing the jurisdiction within 60 days of
[61 FR 3304, Jan. 31, 1996, as amended at 71 the date of the disaster. The addresses,
FR 75409, Dec. 15, 2007; 75 FR 60597, Oct. 1, phone numbers, and jurisdictions
2010; 81 FR 67903, Oct. 3, 2016] served by the field operations centers
are published in the FEDERAL REG-
§ 123.3 How are disaster declarations ISTER.
made? (4) SBA makes an economic injury
(a) There are five ways in which dis- disaster declaration in response to a
aster declarations are issued which determination of a natural disaster by
make SBA disaster loans possible: the Secretary of Agriculture.
(1) The President declares a Major (5) SBA makes an economic injury
Disaster and authorizes Federal Assist- declaration in reliance on a state cer-
ance, including individual assistance tification that at least five small busi-
(Assistance to Individuals and House- ness concerns in a disaster area have
holds Program). suffered substantial economic injury as
spaschal on DSKJM0X7X2PROD with CFR
(2) If the President declares a Major a result of the disaster and are in need
Disaster limited to public assistance of financial assistance not otherwise
only, a private nonprofit facility which available on reasonable terms. The
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§ 123.4 13 CFR Ch. I (1–1–21 Edition)
state certification must be signed by declared disaster area are eligible to
the Governor, must specify the county apply for SBA disaster loans. When the
or counties or other political subdivi- President declares a major disaster,
sion in which the disaster occurred, the Federal Emergency Management
and must be delivered (with supporting Agency defines the disaster area. In
documentation) to the Disaster Assist- major disasters, economic injury dis-
ance Field Operations Center serving aster loans and IDAP loans may be
the jurisdiction within 120 days of the made for victims in contiguous coun-
disaster occurrence. When a Governor ties or other political subdivisions, pro-
certifies with respect to a drought or vided, however that with respect to
to below average water levels, the sup-
major disasters which authorize public
porting documentation must include
assistance only, SBA shall not make
findings which show that conditions
economic injury disaster or IDAP loans
during the incident period meet or ex-
ceed the U.S. Drought Monitor (USDM) in counties contiguous to the disaster
standard of ‘‘severe’’ (Intensity level area. Disaster declarations issued by
D–2 to D–4). The USDM may be found the Administrator of SBA include con-
at http://drought.unl.edu/dm/monitor. tiguous counties for both physical, eco-
With respect to below average water nomic injury and, in some cases, IDAP
levels, the supplementary information assistance. Contiguous counties or
accompanying the certification must other political subdivisions are those
include findings which establish long- land areas which abut the land area of
term average water levels based on re- the declared disaster area without geo-
corded historical data, show that cur- graphic separation other than by a
rent water levels are below long-term minor body of water, not to exceed one
average levels, and demonstrate that mile between the land areas of such
economic injury has occurred as a di- counties.
rect result of the low water levels. Not
later than 30 days after SBA receives a [61 FR 3304, Jan. 31, 1996, as amended at 67
FR 64519, Oct. 21, 2002; 75 FR 60597, Oct. 1,
certification by a Governor, it shall re-
2010]
spond in writing with its decision and
its reasons. § 123.5 What kinds of loans are avail-
(b) SBA publishes notice of any dis- able?
aster declaration in the FEDERAL REG-
ISTER. The published notice will iden- (a) Disaster loans authorized under Sec-
tify the kinds of assistance available, tion 7(b). SBA offers four kinds of dis-
the date and nature of the disaster, and aster loans as authorized by Section
the deadline and location for filing 7(b) of the Small Business Act: Phys-
loan applications. Additionally, SBA ical disaster home loans, physical dis-
will use the local media to inform po- aster business loans, economic injury
tential loan applicants where to obtain disaster business loans, and Military
loan applications and otherwise to as- Reservist EIDL loans. SBA makes
sist victims in applying for disaster these loans directly or in participation
loans. SBA will accept applications with a financial institution. If a dis-
after the announced deadline only aster loan authorized under Section
when SBA determines that the late fil- 7(b) is made in participation with a fi-
ing resulted from substantial causes nancial institution, SBA’s share in
beyond the control of the applicant. that loan may not exceed 90 percent.
[61 FR 3304, Jan. 31, 1996, as amended at 64 (b) IDAP loans. SBA also offers IDAP
FR 13667, Mar. 22, 1999; 67 FR 64518, Oct. 21, loans as authorized by Section 42 of the
2002; 71 FR 63676, Oct. 31, 2006; 71 FR 75409, Small Business Act. SBA makes these
Dec. 15, 2006; 73 FR 54675, Sept. 23, 2008; 81 FR
interim guaranteed disaster loans to
67903, Oct. 3, 2016]
small businesses only in participation
§ 123.4 What is a disaster area and with a financial institution. SBA’s
why is it important? share in an IDAP loan is equal to 85
spaschal on DSKJM0X7X2PROD with CFR
Each disaster declaration defines the percent.
geographical areas affected by the dis- [75 FR 60597, Oct. 1, 2010]
aster. Only those victims located in the
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Small Business Administration § 123.10
§ 123.6 What does SBA look for when of the loan, repayment terms, any col-
considering a disaster loan appli- lateral requirements, and the per-
cant? mitted use of loan proceeds. If you
There must be reasonable assurance wrongfully misapply the proceeds of a
that you can repay your loan based on disaster loan authorized under Section
SBA’s analysis of your credit or your 7(b), you will be liable to SBA for one
personal or business cash flow, and you and one-half times the proceeds dis-
must also have satisfactory character. bursed to you as of the date SBA learns
SBA will not make a loan to you if re- of your wrongful misapplication.
payment depends upon the sale of col- Wrongful misapplication means the
lateral through foreclosure or any willful use of any loan proceeds with-
other disposition of assets owned by out SBA approval contrary to the loan
you. SBA is prohibited by statute from authorization. If you fail to use loan
making a loan to you if you are en- proceeds for authorized purposes for 60
gaged in the production or distribution days or more after receiving a loan dis-
of any product or service that has been bursement check, such non-use also is
determined to be obscene by a court. considered a wrongful misapplication
[61 FR 3304, Jan. 31, 1996, as amended at 79 of the proceeds.
FR 22862, Apr. 25, 2014] (b) If SBA learns that you may have
misapplied your loan proceeds from a
§ 123.7 Are there restrictions on how disaster loan authorized under Section
disaster loans can be used?
7(b), SBA will notify you at your last
You must use disaster loans to re- known address, by certified mail, re-
store or replace your primary home turn receipt requested. You will be
(including a mobile home used as a pri- given at least 30 days to submit to SBA
mary residence) and your personal or evidence that you have not misapplied
business property as nearly as possible the loan proceeds or that you have cor-
to their condition before the disaster rected any such misapplication. Any
occurred, and within certain limits, to failure to respond in time will be con-
protect damaged or destroyed real sidered an admission that you mis-
property from possible future similar applied the proceeds. If SBA finds a
disasters. wrongful misapplication, it will cancel
§ 123.8 Does SBA charge any fees for any undisbursed loan proceeds, call the
obtaining a disaster loan? loan, and begin collection measures to
collect your outstanding loan balance
SBA does not charge points, closing, and the civil penalty.
or servicing fees on any disaster loan
(c) If you misapply loan proceeds of
authorized under Section 7(b). You will
any disaster loan under this Part, in-
be responsible for payment of any clos-
ing costs owed to third parties on these cluding an IDAP loan, you may face
loans, such as recording fees and title criminal prosecution or civil or admin-
insurance premiums. If your loan is istrative action.
made under Section 7(b) in participa- [61 FR 3304, Jan. 31, 1996, as amended at 75
tion with a financial institution, SBA FR 60598, Oct. 1, 2010]
will charge a guarantee fee to the fi-
nancial institution, which then may re- § 123.10 What happens if I cannot use
cover the guarantee fee from you. SBA my insurance proceeds to make re-
does not charge a guarantee fee for an pairs?
IDAP loan made under Section 42. If you must pay insurance proceeds
[75 FR 60598, Oct. 1, 2010] to the holder of a recorded lien or en-
cumbrance against your damaged prop-
§ 123.9 What happens if I don’t use erty instead of using them to make re-
loan proceeds for the intended pur- pairs, you may apply to SBA for the
pose? full amount needed to make such re-
(a) For disaster loans authorized pairs. If you voluntarily pay insurance
spaschal on DSKJM0X7X2PROD with CFR
under Section 7(b), when SBA approves proceeds to a recorded lienholder, your
each application, it issues a loan au- loan eligibility is reduced by the
thorization which specifies the amount amount of the voluntary payment.
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§ 123.11 13 CFR Ch. I (1–1–21 Edition)
§ 123.11 Does SBA require collateral all contracts and receipts, for a period
for any of its disaster loans? of 3 years after you receive your final
(a) When collateral is not required: disbursement of loan proceeds. If you
(1) Economic injury disaster loans. Gen- have a physical disaster business or
erally, SBA will not require that you economic injury loan, you must also
pledge collateral to secure an economic maintain current and accurate books
injury disaster loan of $25,000 or less. of account, including financial and op-
(2) Physical disaster home and physical erating statements, insurance policies,
disaster business loans. Generally, SBA and tax returns. You must retain appli-
will not require that you pledge collat- cable books and records for 3 years
eral to secure a physical disaster home after your loan matures including any
or physical disaster business loan of extensions, or from the date when your
$25,000 or less. This authority expires loan is paid in full, whichever occurs
on November 25, 2018, unless extended first. You must make available to SBA
by statute. or other authorized government per-
(3) IDAP loans. Collateral require- sonnel upon request all such books and
ments for IDAP loans are set forth in records for inspection, audit, and re-
Subpart H of this part. production during normal business
(4) Military Reservist EIDL. For the hours and you must also permit SBA
purposes of the Military Reservist and any participating financial institu-
EIDL only, as described in section tion to inspect and appraise your as-
123.513, SBA will not generally require sets. (OMB Approval No. 3245–0110.)
that you pledge collateral to secure a
loan of $50,000 or less. § 123.13 What happens if my loan ap-
(b) For loans larger than the plication is denied?
amounts outlined in paragraph (a) of (a) If SBA denies your loan applica-
this section, you will be required to tion, SBA will notify you in writing
provide available collateral such as a
and set forth the specific reasons for
lien on the damaged or replacement
the denial. Any applicant whose re-
property, a security interest in per-
quest for a loan is declined for reasons
sonal/business property, or both.
other than size (not being a small busi-
(c) Sometimes a borrower, including
ness) has the right to present informa-
affiliates as defined in part 121 of this
tion to overcome the reason or reasons
title, will have more than one loan
for the decline and to request reconsid-
after a single disaster. In deciding
eration in writing.
whether collateral is required, SBA
will add up all physical disaster loans (b) Any decline due to size can only
to see if they exceed the applicable un- be appealed as set forth in part 121 of
secured threshold outlined in para- this chapter.
graph (a)(2) of this section and all eco- (c) Any request for reconsideration
nomic injury disaster loans to see if must be received by SBA’s Disaster As-
they exceed $25,000. sistance Processing and Disbursement
(d) SBA will not decline a loan if you Center (DAPDC) within six months of
lack a particular amount of collateral the date of the decline notice. After six
as long as it is reasonably sure that months, a new loan application is re-
you can repay your loan. If you refuse quired.
to pledge available collateral when re- (d) A request for reconsideration
quested by SBA, however, SBA may de- must contain all significant new infor-
cline or cancel your loan. mation that you rely on to overcome
SBA’s denial of your original loan ap-
[61 FR 3304, Jan. 31, 1996, as amended at 73
FR 54675, Sept. 23, 2008; 75 FR 14332, Mar. 25, plication. Your request for reconsider-
2010; 75 FR 60598, Oct. 1, 2010; 79 FR 22862, ation of a business loan application
Apr. 25, 2014; 81 FR 67903, Oct. 3, 2016] must also be accompanied by current
business financial statements.
§ 123.12 Are books and records re- (e) If SBA declines your application a
quired? second time, you have the right to ap-
spaschal on DSKJM0X7X2PROD with CFR
You must retain complete records of peal in writing to the Director, Dis-
all transactions financed with your aster Assistance Processing and Dis-
SBA loan proceeds, including copies of bursement Center. All appeals must be
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Small Business Administration § 123.17
received by the processing center with- (3) Other circumstances exist which
in 30 days of the decline action. Your would justify a waiver.
request must state that you are appeal- (b) The waiver determination by the
ing, and must give specific reasons why Associate Administrator for Disaster
the decline action should be reversed. Assistance, or designee, is a final, non-
(f) The decision of the Director, appealable decision. The granting of a
DAPDC, is final unless: waiver does not include loan approval;
(1) The Director, DAPDC, does not a waiver recipient must then follow
have the authority to approve the re- normal loan application procedures.
quested loan; [61 FR 3304, Jan. 31, 1996, as amended at 75
(2) The Director, DAPDC, refers the FR 60598, Oct. 1, 2010]
matter to the AA/DA; or
(3) The AA/DA, upon a showing of § 123.15 What if I change my mind?
special circumstances, requests that If SBA required you to pledge collat-
the Director, DAPDC, forward the mat- eral for your loan, you may change
ter to him or her for final consider- your mind and rescind your loan pursu-
ation. Special circumstances may in- ant to the Consumer Credit Protection
clude, but are not limited to, policy Act, 15 U.S.C. 1601, and Regulation Z of
considerations or alleged improper acts the Federal Reserve Board, 12 CFR part
by SBA personnel or others in proc- 226. Your note and any collateral docu-
essing the application. ments signed by you will be canceled
(g) This section does not apply to
upon your return of all loan proceeds
IDAP loans.
and your payment of any interest ac-
[61 FR 3304, Jan. 31, 1996, as amended at 71 crued. This provision does not apply to
FR 63676, Oct. 31, 2006; 75 FR 60598, Oct. 1, IDAP loans.
2010; 81 FR 67903, Oct. 3, 2016]
[61 FR 3304, Jan. 31, 1996, as amended at 75
§ 123.14 How does the Federal Debt FR 60598, Oct. 1, 2010]
Collection Procedures Act of 1990
apply? § 123.16 How are loans administered
and serviced?
(a) Under the Federal Debt Collection
Procedures Act of 1990 (28 U.S.C. (a) If you obtained your disaster loan
3201(e)), a debtor who owns property from a participating lender, that lender
which is subject to an outstanding is responsible for closing and servicing
judgment lien for a debt owed to the your loan. If you obtained your loan di-
United States generally is not eligible rectly from SBA, your loan will be
to receive a disaster loan. The SBA As- closed and serviced by SBA. The SBA
sociate Administrator for Disaster As- rules on servicing are found in Subpart
sistance, or designee, may waive this H of this part and part 120 of this chap-
restriction as to disaster loans (except ter.
IDAP loans) upon a demonstration of (b) If you are unable to pay your SBA
good cause. Good cause means a writ- loan installments in a timely manner
ten representation by you under oath for reasons substantially beyond your
which convinces SBA that: control, you may request that SBA sus-
(1) The declared disaster was a major pend your loan payments, extend your
contributing factor to the delinquency maturity, or both.
which led to the judgment lien, regard- [61 FR 3304, Jan. 31, 1996, as amended at 75
less of when the original debt was in- FR 60598, Oct. 1, 2010]
curred; or
(2) The disaster directly prevented § 123.17 Do other Federal require-
you from fulfilling the terms of an ments apply?
agreement with SBA or any other Fed- As a condition of disbursement, you
eral Government entity to satisfy its must be in compliance with certain re-
pre-disaster judgment lien; in this situ- quirements relating to flood insurance,
ation, the judgment creditor must cer- lead-based paint, earthquake hazards,
tify to SBA that you were complying coastal barrier islands, and child sup-
spaschal on DSKJM0X7X2PROD with CFR
with the agreement to satisfy the judg- port obligations, as set forth in
ment lien when the disaster occurred; §§ 120.170 through 120.175 of this chap-
or ter.
459
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§ 123.18 13 CFR Ch. I (1–1–21 Edition)
§ 123.18 Can I request an increase in which the SBA economic injury dis-
the amount of a physical disaster aster loan was originally made.
loan?
[63 FR 15072, Mar. 30, 1998]
(a) Generally, SBA will consider your
request for an increase in your loan if § 123.20 How long do I have to request
you can show that the eligible cost of an increase in the amount of a
repair or replacement of damages in- physical disaster loan or an eco-
creased because of events occurring nomic injury loan?
after the loan approval that were be- (a) You should request a loan in-
yond your control. An eligible cost is crease as soon as possible after you dis-
one which is related to the disaster for
cover the need for the increase, but not
which SBA issued the original loan.
later than two years after SBA ap-
For example, if you discover hidden
proved your physical disaster or eco-
damage within a reasonable time after
nomic injury loan. After two years, the
SBA approved your original disaster
SBA Associate Administrator for Dis-
loan and before repair, renovation, or
reconstruction is complete, you may aster Assistance (AA/DA) may waive
request an increase. Or, if applicable this limitation after finding extraor-
building code requirements were dinary and unforeseeable cir-
changed since SBA approved your cumstances.
original loan, you may request an in- (b) For physical disaster loan in-
crease in your loan amount. creases requested under § 123.18(b) as a
(b) For all disasters occurring on or result of malfeasance, the request must
after November 25, 2015, you may also be received not later than two years
request an increase in your loan if you after the date of final disbursement.
suffered substantial economic damage [63 FR 15073, Mar. 30, 1998, as amended at 81
or substantial risks to health or safety FR 67903, Oct. 3, 2016]
as a result of malfeasance in connec-
tion with the repair or replacement of § 123.21 What is a mitigation measure?
real property or business machinery
and equipment for which SBA made a A mitigation measure is something
disaster loan. See § 123.105 for limits on done for the purpose of protecting
home loan amounts and § 123.202 for property and occupants against dis-
limits on business loan amounts. Mal- aster related damage. You may imple-
feasance may include, but is not lim- ment mitigation measures after a dis-
ited to, nonperformance of all or any aster occurs (post-disaster) to protect
portion of the work for which a con- against recurring disaster related dam-
tractor was paid, work that does not age, or before a disaster occurs (pre-
meet acceptable standards, or use of disaster) to protect against future dis-
substandard materials. aster related damage. Examples of
mitigation measures include building
[63 FR 15072, Mar. 30, 1998, as amended at 81 retaining walls, sea walls, grading and
FR 67903, Oct. 3, 2016]
contouring land, elevating flood prone
§ 123.19 May I request an increase in structures, relocating utilities, con-
the amount of an economic injury structing a safe room or similar storm
loan? shelter (if such safe room or similar
SBA will consider your request for an storm shelter is constructed in accord-
increase in the loan amount if you can ance with applicable standards issued
show that the increase is essential for by the Federal Emergency Manage-
your business to continue and is based ment Agency), or retrofitting struc-
on events occurring after SBA ap- tures to protect against high winds,
proved your original loan which were earthquakes, flood, wildfires, or other
beyond your control. For example, physical disasters. Section 123.107 spe-
delays may have occurred beyond your cifically addresses post-disaster miti-
control which prevent you from resum- gation for home disaster loans, and
ing your normal business activity in a § 123.204 specifically addresses post-dis-
spaschal on DSKJM0X7X2PROD with CFR
reasonable time frame. Your request aster mitigation for businesses.
for an increase in the loan amount [67 FR 62337, Oct. 7, 2002, as amended at 81 FR
must be related to the disaster for 67903, Oct. 3, 2016; 85 FR 12864, Mar. 5, 2020]
460
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Small Business Administration § 123.102
Subpart B—Home Disaster Loans (d) SBA determines that you assumed
the risk (for example, by not maintain-
§ 123.100 Am I eligible to apply for a ing flood insurance as required by an
home disaster loan? earlier SBA disaster loan when the cur-
(a) You are eligible to apply for a rent loss is also due to flood);
home disaster loan if you: (e) Your damaged property is a sec-
(1) Own and occupy your primary res- ondary home (although if you rented
idence and have suffered a physical loss the property out before the disaster
to your primary residence, personal and the property would not constitute
property, or both; or a ‘‘residence’’ under the provisions of
(2) Do not own your primary resi- Section 280A of the Internal Revenue
dence, but have suffered a physical loss Code (26 U.S.C. 280A), you may be eligi-
to your personal property. Family ble for a physical disaster business
members sharing a residence are eligi- loan);
ble if they are not dependents of the (f) Your damaged property is the type
owners of the residence. of vehicle normally used for rec-
(b) Losses may be claimed only by reational purposes, such as
the owners of the property at the time motorhomes, aircraft, and boats;
of the disaster, and all such losses will (g) Your damaged property consists
be verified by SBA. SBA will consider of cash or securities;
beneficial ownership as well as legal (h) The replacement value of your
title (for real or personal property) in damaged personal property is extraor-
determining who suffered the loss. dinarily high and not easily verified,
such as the value of antiques,
§ 123.101 When am I not eligible for a artworks, or hobby collections;
home disaster loan? (i) You or other principal owners of
You are not eligible for a home dis- the damaged property are presently in-
aster loan if: carcerated, or on probation or parole
(a) You have been convicted, during following conviction for a serious
the past year, of a felony during and in criminal offense;
connection with a riot or civil disorder (j) Your only interest in the damaged
or other declared disaster; property is in the form of a security in-
(b) You acquired voluntarily more terest, mortgage, or deed of trust;
than a 50 percent ownership interest in (k) The damaged building, including
the damaged property after the dis- contents, was newly constructed or
aster, and no contract of sale existed at substantially improved on or after Feb-
the time of the disaster; ruary 9, 1989, and (without a significant
(c) Your damaged property can be re- business justification) is located sea-
paired or replaced with the proceeds of ward of mean high tide or entirely in
insurance, gifts or other compensation, or over water; or
including condemnation awards (with (l) You voluntarily decide to relocate
one exception), these amounts must ei- outside the business area in which the
ther be deducted from the amount of disaster has occurred, and there are no
the claimed losses or, if received after special or unusual circumstances lead-
SBA has approved and disbursed a loan, ing to your decision (business area
must be paid to SBA as principal pay- means the municipality which provides
ments on your loan. You must notify general governmental services to your
SBA of any such recoveries collected damaged home or, if not located in a
after receiving an SBA disaster loan. municipality, the county or equivalent
The one exception applies to amounts political entity in which your damaged
received under the Individuals and home is located).
Household Program of the Federal [61 FR 3304, Jan. 31, 1996, as amended at 67
Emergency Management Agency solely FR 64519, Oct. 21, 2002]
to meet an emergency need pending
processing of an SBA loan. In such an § 123.102 What circumstances would
event, you must repay the financial as- justify my relocating?
spaschal on DSKJM0X7X2PROD with CFR
sistance with SBA loan proceeds if it SBA may approve a loan if you in-
was used for purposes also eligible for tend to relocate outside the business
an SBA loan; area in which the disaster has occurred
461
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§ 123.103 13 CFR Ch. I (1–1–21 Edition)
if your relocation is caused by such § 123.105 How much can I borrow with
special or unusual circumstances as: a home disaster loan and what lim-
(a) Demonstrable risk that the busi- its apply on use of funds and repay-
ness area will suffer future disasters; ment terms?
(b) A change in employment status (a) There are limits on how much
(such as loss of job, transfer, lack of money you can borrow for particular
adequate job opportunities within the purposes:
business area or scheduled retirement (1) $40,000 for repair or replacement of
household and personal effects;
within 18 months after the disaster oc-
(2) $200,000 for repair or replacement
curs);
of a primary residence (including up-
(c) Medical reasons; or grading in order to meet minimum
(d) Special family considerations standards of safety and decency or cur-
which necessitate a move outside of rent building code requirements). Re-
the business area. pair or replacement of landscaping and/
or recreational facilities cannot exceed
§ 123.103 What happens if I am forced $5,000;
to move from my home? (3) $200,000 for eligible refinancing
If you must relocate inside or outside purposes;
the business area because local au- (4) 20 percent of the verified loss (not
thorities will not allow you to repair including refinancing or malfeasance),
your damaged property, SBA considers before deduction of compensation from
this to be a total loss and a mandatory other sources, up to a maximum of
relocation. In this case, your loan $200,000 for post-disaster mitigation
(see § 123.107); and
would be an amount that SBA con-
(5) $200,000 for eligible malfeasance,
siders sufficient to replace your resi-
pursuant to § 123.18.
dence at your new location, plus funds (b) You may not use loan proceeds to
to cover losses of personal property and repay any debts on personal property,
eligible refinancing. secured or unsecured, unless you in-
curred those debts as a direct result of
§ 123.104 What interest rate will I pay
the disaster.
on my home disaster loan?
(c) SBA determines the loan matu-
If you can obtain credit elsewhere, rity and repayment terms based on
your interest rate is set by a statutory your needs and your ability to pay.
formula, but will not exceed 8 percent Generally, you will pay equal monthly
per annum. If you cannot obtain credit installments of principal and interest,
elsewhere, your interest rate is one- beginning five months from the date of
half the statutory rate, but will not ex- the loan, as shown on the Note secur-
ceed 4 percent per annum. Credit else- ing the loan. SBA will consider other
where means that, with your cash flow payment terms if you have seasonal or
and disposable assets, SBA believes you fluctuating income, and SBA may
could obtain financing from non-fed- allow installment payments of varying
eral sources on reasonable terms. If amounts over the first two years of the
you cannot obtain credit elsewhere, loan. The maximum maturity for a
home disaster loan is 30 years. There is
you also may be able to borrow from
no penalty for prepayment of home dis-
SBA to refinance existing recorded
aster loans.
liens against your damaged real prop-
erty. Under prior legislation, some [61 FR 3304, Jan. 31, 1996, as amended at 75
SBA disaster loans had split interest FR 14332, Mar. 25, 2010; 81 FR 67903, Oct. 3,
2016]
rates. On any such loan, repayments of
principal are applied first to that por- § 123.106 What is eligible refinancing?
tion of the loan with the lowest inter-
(a) If your home (primary residence)
est rate.
is totally destroyed or substantially
damaged, and you do not have credit
spaschal on DSKJM0X7X2PROD with CFR
elsewhere, SBA may allow you to bor-
row money to refinance recorded liens
or encumbrances on your home. Your
462
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Small Business Administration § 123.200
home is totally destroyed or substan- disaster. If SBA is unable to approve
tially damaged if it has suffered unin- your loan application, or if you have
sured or otherwise uncompensated damage in excess of the SBA loan
damage which, at the time of the dis- amount, SBA may refer you, on a time-
aster, is either: ly basis, to FEMA for IHP grant con-
(1) 40 percent or more of the home’s sideration to assist with your unmet
market value or replacement cost at personal property and transportation
the time of the disaster, including land needs. If you are approved for the SBA
value, whichever is less; or disaster loan and you have received
(2) 50 percent or more of its market
grant assistance that duplicates the
value or replacement cost at the time
damage covered by the SBA loan, such
of the disaster, not including land
value, whichever is less. grant assistance must be deducted
(b) Your home disaster loan for refi- from your loan eligibility as described
nancing existing liens or encumbrances in section 123.101(c) of the regulations.
cannot exceed an amount equal to the All grant decisions are made by FEMA.
lesser of $200,000, or the physical dam- Additionally, if additional disaster as-
age to your primary residence after re- sistance is available from state, local
ductions for any insurance or other re- or other agencies, SBA may refer you
covery. to the appropriate agency for consider-
ation.
§ 123.107 How much can I borrow for
post-disaster mitigation for my [75 FR 7546, Feb. 22, 2010]
home?
For mitigation measures imple- Subpart C—Physical Disaster
mented after a disaster has occurred, Business Loans
you can request that the approved
home disaster loan amount be in- § 123.200 Am I eligible to apply for a
creased by the lesser of the cost of the physical disaster business loan?
mitigation measure, or up to 20 percent (a) Almost any business concern or
of the verified loss (before deducting charitable or other non-profit entity
compensation from other sources), to a whose real or tangible personal prop-
maximum of $200,000.
erty is damaged in a declared disaster
[75 FR 14332, Mar. 25, 2010] area is eligible to apply for a physical
disaster business loan. Your business
§ 123.108 How do the SBA disaster loan may be a sole proprietorship, partner-
program and the FEMA grant pro-
grams interact? ship, corporation, limited liability
company, or other legal entity recog-
After a Presidential disaster declara-
nized under State law. Your business’
tion is made, you may be eligible for
size (average annual receipts or num-
disaster assistance, including grant as-
ber of employees) is not taken into
sistance, from the Federal Emergency
Management Agency’s (FEMA) Federal consideration in determining your eli-
Assistance to Individuals and House- gibility for a physical disaster business
holds Program (IHP). After you reg- loan. If your damaged business occu-
ister with FEMA for disaster assist- pied rented space at the time of the
ance, FEMA will consider you for IHP disaster, and the terms of your busi-
assistance, which includes housing as- ness’ lease require you to make repairs
sistance grants to repair or replace to your business’ building, you may
your damaged primary residence and have suffered a physical loss and can
temporary housing assistance (includ- apply for a physical business disaster
ing rental assistance) to assist you loan to repair the property. In all other
temporarily with a place to live, and cases, the owner of the building is the
assistance with personal property, eligible loan applicant.
medical, dental and funeral expenses. (b) Damaged vehicles, of the type
FEMA may also refer you to SBA to normally used for recreational pur-
spaschal on DSKJM0X7X2PROD with CFR
apply for loan assistance to help repair poses, such as motorhomes, aircraft,
or rebuild your home and/or to replace and boats, may be repaired or replaced
personal property destroyed during the
463
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§ 123.201 13 CFR Ch. I (1–1–21 Edition)
with SBA loan proceeds if you can sub- the disaster, which makes it uneco-
mit evidence that the damaged vehi- nomical to continue operations in your
cles were used in your business at the business area;
time of the disaster. (3) A substantial change in your cost
of doing business, as a result of the dis-
§ 123.201 When am I not eligible to aster, which makes the continuation of
apply for a physical disaster busi- your business in the business area not
ness loan?
economically viable;
(a) You are not eligible for a physical (4) Location of your business in a
disaster business loan if your business hazardous area such as a special flood
is an agricultural enterprise or if you hazard area or an earthquake-prone
(or any principal of the business) fit area;
into any of the categories in § 123.101. (5) A change in the public infrastruc-
Agricultural enterprise means a busi- ture in your business area which oc-
ness primarily engaged in the produc- curred within 18 months or as a result
tion of food and fiber, ranching and of the disaster that would result in
raising of livestock, aquaculture and substantially increased expenses for
all other farming and agriculture-re- your business in the business area;
lated industries. (6) Your implementation of decisions
(b) Sometimes a damaged business adopted and at least partially imple-
entity (whether in the form of a cor- mented within 18 months prior to the
poration, limited liability company, disaster to move your business out of
partnership, or sole proprietorship) is the business area; and
engaged in both agricultural enterprise
(7) Other factors which undermine
and a non-agricultural business ven-
the economic viability of your business
ture. If the agricultural enterprise part
area.
of your business entity has suffered a
(d) You are not eligible if your busi-
physical disaster, that enterprise is not
ness is engaged in any illegal activity.
eligible for SBA physical disaster as-
sistance. If the non-agricultural busi- (e) You are not eligible if you are a
ness venture of your entity has suf- government owned entity (except for a
fered physical disaster damage, that business owned or controlled by a Na-
part of your business operation would tive American tribe).
be eligible for SBA physical disaster (f) You are not eligible if your busi-
assistance. If both the agricultural en- ness presents live performances of a
terprise part and the non-agricultural prurient sexual nature or derives di-
business venture have incurred phys- rectly or indirectly more than de mini-
ical disaster damage, only the non-ag- mis gross revenue through the sale of
ricultural business venture of your products or services, or the presen-
business entity would be eligible for tation of any depictions or displays, of
SBA physical disaster assistance. a prurient sexual nature.
(c) If your business is going to relo- [61 FR 3304, Jan. 31, 1996, as amended at 62
cate voluntarily outside the business FR 35337, July 1, 1997; 63 FR 46644, Sept. 2,
area in which the disaster occurred, 1998]
you are not eligible for a physical dis-
aster business loan. If, however, the re- § 123.202 How much can my business
location is due to uncontrollable or borrow with a physical disaster
compelling circumstances, SBA will business loan?
consider the relocation to be involun- (a) Disaster business loans, including
tary and eligible for a loan. Such cir- both physical disaster and economic in-
cumstances may include, but are not jury loans to the same borrower, to-
limited to: gether with its affiliates, cannot ex-
(1) The elimination or substantial de- ceed the lesser of the uncompensated
crease in the market for your products physical loss and economic injury or $2
or services, as a consequence of the dis- million. Physical disaster loans may
aster; include amounts to meet current build-
spaschal on DSKJM0X7X2PROD with CFR
(2) A change in the demographics of ing code requirements. If your business
your business area within 18 months is a major source of employment, SBA
prior to the disaster, or as a result of may waive the $2 million limitation. A
464
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Small Business Administration § 123.203
major source of employment is a busi- (d) Loan funds allocated for repair or
ness concern that has one or more loca- replacement of landscaping or rec-
tions in the disaster area, on or after reational facilities may not exceed
the date of the disaster, which: $5,000 unless the landscaping or rec-
(1) Employed 10 percent or more of reational facilities fulfilled a func-
the entire work force within the com- tional need or contributed to the gen-
muting area of a geographically identi- eration of business.
fiable community (no larger than a (e) The SBA Administrator may in-
county), provided that the commuting crease the $2 million loan limit for dis-
area does not extend more than 50 aster business physical and economic
miles from such community; or injury loans under an individual dis-
(2) Employed 5 percent of the work aster declaration based on appropriate
force in an industry within the disaster economic indicators for the region(s) in
area and, if the concern is a non-manu- which the disaster occurred. SBA will
facturing concern, employed no less publish the increased loan amount in
than 50 employees in the disaster area, the FEDERAL REGISTER.
or if the concern is a manufacturing [61 FR 3304, Jan. 31, 1996, as amended at 63
concern, employed no less than 150 em- FR 46644, Sept. 2, 1998; 75 FR 14332, Mar. 25,
ployees in the disaster area; or 2010]
(3) Employed no less than 250 employ-
ees within the disaster area. § 123.203 What interest rate will my
(b) SBA will consider waiving the $2 business pay on a physical disaster
million loan limit for a major source of business loan and what are the re-
payment terms?
employment only if:
(1) Your damaged location or loca- (a) SBA will announce interest rates
tions are out of business or in immi- with each disaster declaration. If your
nent danger of going out of business as business, together with its affiliates
a result of the disaster, and a loan in and principal owners, has credit else-
excess of $2 million is necessary to re- where, your interest rate is set by a
open or keep open the damaged loca- statutory formula, but will not exceed
tions in order to avoid substantial un- 8 percent per annum. If you do not
employment in the disaster area; and have credit elsewhere, your interest
(2) You have used all reasonably rate will not exceed 4 percent per
available funds from your business, its annum. The maturity of your loan de-
affiliates and its principal owners (20% pends upon your repayment ability,
or greater ownership interest) and all but cannot exceed seven years if you
available credit elsewhere (as described have credit elsewhere.
in § 123.104) to alleviate your physical (b) Generally, you must pay equal
damage and economic injury. monthly installments, of principal and
(c) Physical disaster business bor- interest, beginning five months from
rowers may request refinancing of liens the date of the loan as shown on the
on both damaged real property and ma- Note. SBA will consider other payment
chinery and equipment, but for an terms if you have seasonal or fluc-
amount reduced by insurance or other tuating income, and SBA may allow in-
compensation. To do so, your business stallment payments of varying
property must be totally destroyed or amounts over the first two years of the
substantially damaged, which means: loan. There is no penalty for prepay-
(1) 40 percent or more of the aggre- ment for disaster loans.
gate value (lesser of market value or (c) For certain disaster business
replacement cost at the time of the physical and economic injury loans, an
disaster) of the damaged real property additional payment, based on a per-
(including land) and damaged machin- centage of net earnings, will be re-
ery and equipment; or quired to reduce the balance of the
(2) 50 percent or more of the aggre- loan. This additional payment will not
gate value (lesser of market value or be required until 5 years after repay-
replacement cost at the time of the ment begins.
spaschal on DSKJM0X7X2PROD with CFR
disaster) of the damaged real property [61 FR 3304, Jan. 31, 1996, as amended at 75
(excluding land) and damaged machin- FR 14333, Mar. 25, 2010; 77 FR 12157, Feb. 29,
ery and equipment. 2012]
465
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§ 123.204 13 CFR Ch. I (1–1–21 Edition)
§ 123.204 How much can your business (3) Producer cooperatives; and
borrow for post-disaster mitigation? (4) Small aquaculture enterprises.
For mitigation measures imple- (d) An eligible private non-profit or-
mented after a disaster has occurred, ganization is a non-governmental agen-
you can request an increase in the ap- cy or entity that currently has:
proved physical disaster business loan (1) An effective ruling letter from the
by the lesser of the cost of the mitiga- U.S. Internal Revenue Service, grant-
tion measure, or up to 20 percent of the ing tax exemption under sections
verified loss, before deducting com- 510(c), (d), or (e) of the Internal Rev-
pensation from other sources, to repair enue Code of 1954, or
or replace your damaged business. (2) Satisfactory evidence from the
[75 FR 14333, Mar. 25, 2010] State that the non-revenue producing
organization or entity is a non-profit
Subpart D—Economic Injury one organized or doing business under
Disaster Loans State law.
[61 FR 3304, Jan. 31, 1996, as amended at 67
§ 123.300 Is my business eligible to FR 11880, Mar. 15, 2002; 70 FR 72595, Dec. 6,
apply for an economic injury dis- 2005; 73 FR 41254, July 18, 2008; 75 FR 14333,
aster loan?
Mar. 25, 2010; 76 FR 63547, Oct. 12, 2011]
(a) If your business is located in a de-
clared disaster area, and suffered sub- § 123.301 When would my business not
stantial economic injury as a direct re- be eligible to apply for an economic
sult of a declared disaster, you are eli- injury disaster loan?
gible to apply for an economic injury Your business is not eligible for an
disaster loan. economic disaster loan if you (or any
(1) Substantial economic injury is principal of the business) fit into any
such that a business concern is unable of the categories in §§ 123.101 and
to meet its obligations as they mature
123.201, or if your business is:
or to pay its ordinary and necessary
(a) Engaged in lending, multi-level
operating expenses.
(2) Loss of anticipated profits or a sales distribution, speculation, or in-
drop in sales is not considered substan- vestment (except for real estate invest-
tial economic injury for this purpose. ment with property held for rental
(b) Economic injury disaster loans when the disaster occurred);
are available only if you were a small (b) A non-profit or charitable con-
business (as defined in part 121 of this cern, other than a private non-profit
chapter) or a private non-profit organi- organization;
zation when the declared disaster com- (c) A consumer or marketing cooper-
menced, you and your affiliates and ative;
principal owners (20% or more owner- (d) Not a small business concern; or
ship interest) have used all reasonably (e) Deriving more than one-third of
available funds, and you are unable to gross annual revenue from legal gam-
obtain credit elsewhere (see § 123.104). bling activities;
(c) Eligible businesses do not include (f) A loan packager which earns more
agricultural enterprises, but do in-
than one-third of its gross annual rev-
clude—
enue from packaging SBA loans;
(1) Small nurseries affected by a
drought disaster designated by the Sec- (g) Principally engaged in teaching,
retary of Agriculture (nurseries are instructing, counseling, or indoctri-
commercial establishments deriving 50 nating religion or religious beliefs,
percent or more of their annual re- whether in a religious or secular set-
ceipts from the production and sale of ting; or
ornamental plants and other nursery (h) Primarily engaged in political or
products, including, but not limited to, lobbying activities.
bulbs, florist greens, foliage, flowers,
spaschal on DSKJM0X7X2PROD with CFR
[61 FR 3304, Jan. 31, 1996, as amended at 63
flower and vegetable seeds, shrubbery, FR 46644, Sept. 2, 1998; 75 FR 14333, Mar. 25,
and sod); 2010]
(2) Small agricultural cooperatives;
466
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Small Business Administration § 123.501
§ 123.302 What is the interest rate on (b) Military reservist is a member of a
an economic injury disaster loan? reserve component of the Armed
Your economic injury loan will have Forces ordered to active duty during a
an interest rate of 4 percent per annum period of military conflict.
or less. (c) Period of military conflict means:
(1) A period of war declared by the
§ 123.303 How can my business spend Congress,
my economic injury disaster loan? (2) A period of national emergency
(a) You can only use the loan pro- declared by the Congress or by the
ceeds for working capital necessary to President, or
carry your concern until resumption of (3) A period of contingency operation,
normal operations and for expenditures as defined in 10 U.S.C. 101(a).
necessary to alleviate the specific eco- (d) Principal owner is a person or enti-
nomic injury, but not to exceed that ty which owns 20 percent or more of
which the business could have provided the small business.
had the injury not occurred. (e) Substantial economic injury means
(b) Loan proceeds may not be used to: an economic harm to the small busi-
(1) Refinance indebtedness which you ness such that it cannot:
incurred prior to the disaster event; (1) Meet its obligations as they ma-
(2) Make payments on loans owned by ture,
another federal agency (including SBA) (2) Pay its ordinary and necessary op-
or a Small Business Investment Com- erating expenses, or
pany licensed under the Small Business (3) Market, produce or provide a
Investment Act; product or service ordinarily mar-
(3) Pay, directly or indirectly, any keted, produced or provided by the
obligations resulting from a federal, business. Loss of anticipated profits or
state or local tax penalty as a result of a drop in sales is not considered sub-
negligence or fraud, or any non-tax stantial economic injury for this pur-
criminal fine, civil fine, or penalty for pose.
non-compliance with a law, regulation, § 123.501 Under what circumstances is
or order of a federal, state, regional, or your business eligible to be consid-
local agency or similar matter; ered for a Military Reservist Eco-
(4) Repair physical damage; or nomic Injury Disaster Loan?
(5) Pay dividends or other disburse- Your business is eligible to apply for
ments to owners, partners, officers or a Military Reservist EIDL if:
stockholders, except for reasonable re- (a) It is a small business as defined in
muneration directly related to their 13 CFR part 121 when the essential em-
performance of services for the busi- ployee was called to active duty,
ness. (b) The owner of the business is a
military reservist and an essential em-
Subpart E—[Reserved] ployee or the business employs a mili-
tary reservist who is an essential em-
Subpart F—Military Reservist ployee,
Economic Injury Disaster Loans (c) The essential employee has been
called-up to active military duty dur-
SOURCE: 66 FR 38530, July 25, 2001, unless ing a period of military conflict exist-
otherwise noted. ing on or after March 24, 1999,
(d) The business has suffered or is
§ 123.500 Definitions. likely to suffer substantial economic
The following terms have the same injury as a result of the absence of the
meaning wherever they are used in this essential employee, and
subpart: (e) You and your affiliates and prin-
(a) Essential employee is an individual cipal owners (20% or more ownership
(whether or not an owner of a small interest) have used all reasonably
business) whose managerial or tech- available funds, and you are unable to
spaschal on DSKJM0X7X2PROD with CFR
nical expertise is critical to the suc- obtain credit elsewhere (see § 123.104).
cessful day-to-day operations of a [66 FR 38530, July 25, 2001, as amended at 67
small business. FR 64519, Oct. 21, 2002]
467
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§ 123.502 13 CFR Ch. I (1–1–21 Edition)
§ 123.502 Under what circumstances is real estate investment with property
your business ineligible to be con- held for commercial rental);
sidered for a Military Reservist (i) Your business is a non-profit or
Economic Injury Disaster Loan? charitable concern;
Your business is ineligible for a Mili- (j) Your business is a consumer or
tary Reservist EIDL if it, together marketing cooperative;
with its affiliates, is subject to any of (k) Your business is not a small busi-
the following conditions: ness concern;
(l) Your business derives more than
(a) Any of your business’ principal
one-third of its gross annual revenue
owners has been convicted, during the
from legal gambling activities;
past year, of a felony during and in
(m) Your business is a loan packager
connection with a riot or civil disorder; which earns more than one-third of its
(b) You have assumed the risk associ- gross annual revenue from packaging
ated with employing the military re- SBA loans;
servist, as determined by SBA (for ex- (n) Your business’ principal activity
ample, hiring the ‘‘essential employee’’ is teaching, instructing, counseling, or
after the employee has received call-up indoctrinating religion or religious be-
orders or been notified that they are liefs, whether in a religious or secular
imminent); setting; or
(c) Any of your business’ principal (o) Your business’ principal activity
owners is presently incarcerated, or on is political or lobbying activities.
probation or parole following convic-
tion of a serious criminal offense; § 123.503 When can you apply for a
(d) Your business is an agricultural Military Reservist EIDL?
enterprise. Agricultural enterprise Your small business can apply for a
means a business primarily engaged in Military Reservist EIDL any time be-
the production of food and fiber, ranch- ginning on the date your essential em-
ing and raising of livestock, aqua- ployee receives notice of expected call-
culture and all other farming and agri- up and ending one year after the date
culture-related industries. (See 13 CFR the essential employee is discharged or
121.107, ‘‘How does SBA determine a released from active duty. The Asso-
concern’s primary industry?’’) Some- ciate Administrator for Disaster As-
times a business is engaged in both ag- sistance (AA/DA) or designee may ex-
ricultural and non-agricultural busi- tend the one year limit by no more
ness activities. If the primary business then one additional year after finding
activity of the business is not an agri- extraordinary or unforeseeable cir-
cultural enterprise, it may apply for a cumstances.
Military Reservist EIDL, but loan pro- [73 FR 54675, Sept. 23, 2008]
ceeds may not be used, directly or indi-
rectly, for the benefit of the agricul- § 123.504 How do you apply for a Mili-
tural enterprises; tary Reservist EIDL?
(e) Your business is engaged in any To apply for a Military Reservist
illegal activity; EIDL you must complete a SBA Mili-
(f) Your business is a government tary Reservist EIDL application pack-
owned entity (except for a business age (SBA Form 5R and supporting doc-
owned or controlled by a Native Amer- umentation can be obtained through
ican tribe); SBA’s Disaster Area Office) including:
(g) Your business presents live per- (a) A copy of the essential employee’s
formances of a prurient sexual nature official call-up orders for active duty
or derives directly or indirectly more showing the date of call-up, and, if
than an insignificant gross revenue known, the date of release from active
through the sale of products or serv- duty. For an essential employee who
ices, or through the presentation of expects to be called up and who has not
any depictions or displays, of a pru- received official call-up orders, the ap-
rient sexual nature; plication shall include the notice of the
spaschal on DSKJM0X7X2PROD with CFR
(h) Your business is engaged in lend- expected call-up including, if known,
ing, multi-level sales distribution, the expected date of call-up and ex-
speculation, or investment (except for pected date of release from active duty;
468
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Small Business Administration § 123.508
(b) A statement from the business lowing conditions and SBA approves of
owner that the reservist is essential to such certification based on the infor-
the successful day-to-day operations of mation supplied in your application:
the business (detailing the employee’s (a) Your small business is a major
duties and responsibilities and explain- source of employment. A major source
ing why these duties and responsibil- of employment is a business concern
ities can’t be completed in the essen- that, on or after the date of the dis-
tial employee’s absence); aster:
(c) A certification by the essential (1) Employs 10 percent or more of the
employee supporting that he or she work force within the commuting area
concurs with the business owner’s of the geographically identifiable com-
statement as described in paragraph (b) munity (no larger than a county) in
of this section; which the business employing the es-
(d) A written explanation and finan- sential employee is located, provided
cial estimate of how the call-up of the that the commuting area does not ex-
essential employee has or will result in tend more than 50 miles from such
economic injury to your business; community; or
(e) The steps your business is taking (2) Employs 5 percent of the work
to alleviate the economic injury; and force in an industry within such com-
(f) The business owners’ certification muting area and, if the small business
that the essential employee will be of- is a non-manufacturing small business,
fered the same or a similar job upon employs no less than 50 employees in
the employee’s return from active the same commuting area, or if the
duty. small business is a manufacturing
[61 FR 3304, Jan. 31, 1996, as amended at 73 small business, employs no less than
FR 54675, Sept. 23, 2008] 150 employees in the commuting area;
or
§ 123.505 What if you are both an es- (3) Employs no less than 250 employ-
sential employee and the owner of ees within such commuting area;
the small business and you started
active duty before applying for a (b) Your small business is in immi-
Military Reservist EIDL? nent danger of going out of business as
a result of one or more essential em-
If you are both an essential employee
ployees being called up to active duty
and the owner of the small business
during a period of military conflict,
and you started active duty before ap-
and a loan in excess of $2 million is
plying for an Military Reservist EIDL,
necessary to reopen or keep open the
a person who has a power of attorney
small business; and
with the authority to borrow and make
other related commitments on your be- (c) Your small business has used all
half, may complete and submit the reasonably available funds from the
EIDL loan application package for you. small business, its affiliates, its prin-
cipal owners and all available credit
§ 123.506 How much can you borrow elsewhere to alleviate the small busi-
under the Military Reservist EIDL ness’ economic injury. Credit elsewhere
Program? means financing from non-Federal
You can borrow an amount equal to sources on reasonable terms given your
the substantial economic injury you available cash flow and disposable as-
have suffered or are likely to suffer sets which SBA believes your small
until normal operations resume as a re- business, its affiliates and principal
sult of the absence of one or more es- owners could obtain.
sential employees called to active [61 FR 3304, Jan. 31, 1996, as amended at 73
duty, up to a maximum of $2 million. FR 54675, Sept. 23, 2008; 75 FR 14333, Mar. 25,
[73 FR 54675, Sept. 23, 2008] 2010]
§ 123.507 Under what circumstances § 123.508 How can you use Military Re-
will SBA consider waiving the $2 servist EIDL funds?
spaschal on DSKJM0X7X2PROD with CFR
million loan limit? Your small business can use Military
SBA will consider waiving the $2 mil- Reservist EIDL to:
lion limit if you can certify to the fol- (a) Meet obligations as they mature,
469
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§ 123.509 13 CFR Ch. I (1–1–21 Edition)
(b) Pay ordinary and necessary oper- terest rate quarterly in the FEDERAL
ating expenses, or REGISTER.
(c) Enable the business to market,
produce or provide products or services § 123.513 Does SBA require collateral
ordinarily marketed, produced, or pro- on its Military Reservist EIDL?
vided by the business, which cannot be SBA will not generally require you to
done as a result of the essential em- pledge collateral to secure a Military
ployee’s military call-up. Reservist EIDL of $50,000 or less. For
loans larger than $50,000, you will be
§ 123.509 What can’t you use Military required to provide available collateral
Reservist EIDL funds for? such as a lien on business property, a
Your small business can not use Mili- security interest in personal property,
tary Reservist EIDL funds for purposes or both. SBA will not decline a loan if
described in § 123.303(b) (See § 123.303, ‘‘ you do not have a particular amount of
How can my business spend my eco- collateral so long as SBA is reasonably
nomic injury disaster loan?’’). sure that you can repay the loan. If
you refuse to pledge the available col-
§ 123.510 What if you don’t use your lateral when requested by SBA, how-
Military Reservist EIDL funds as ever, SBA may decline or cancel your
authorized? loan.
If your small business does not use [73 FR 54675, Sept. 23, 2008]
Military Reservist EIDL funds as au-
thorized by § 123.508, then § 123.9 applies Subpart G—[Reserved]
(See § 123.9, ‘‘What happens if I don’t
use loan proceeds for the intended pur-
pose?’’). Subpart H—Immediate Disaster
Assistance Program
§ 123.511 How will SBA disburse Mili-
tary Reservist EIDL funds? SOURCE: 75 FR 60598, Oct. 1, 2010, unless
Funds will be disbursed only after otherwise noted.
the essential employee has been called
§ 123.700 What is the Immediate Dis-
to active duty, and you have provided a aster Assistance Program?
copy of the essential employee’s offi-
cial call-up orders for active duty (a) The Immediate Disaster Assist-
showing the date of the call-up. SBA ance Program (IDAP) is a guaranteed
will disburse your funds in quarterly disaster loan program for small busi-
installments (unless otherwise speci- nesses that have suffered physical dam-
fied in your loan authorization agree- age or economic injury due to a De-
ment) based on a continued need as clared Disaster. An IDAP loan is an in-
demonstrated by comparative financial terim loan in an amount not to exceed
information. On or about 30 days before $25,000 made by an IDAP Lender to
your scheduled fund disbursement, meet the immediate business needs of
SBA will request ordinary and usual fi- an IDAP Borrower while approval of
nancial statements (including balance long-term financing from a Disaster
sheets and profit and loss statements). Loan is pending with SBA.
Based on this information, SBA will as- (b) Definitions. As used in this sub-
sess your continued need for disburse- part, the terms below are defined as
ments under this program. Upon mak- follows:
ing such assessment, SBA will notify Contiguous Counties means the coun-
you of the status of future disburse- ties or other political subdivisions
ments. identified in the IDAP-Eligible Dis-
aster Declaration as abutting the Pri-
[73 FR 54675, Sept. 23, 2008] mary Counties.
Credit Elsewhere means that the IDAP
§ 123.512 What is the interest rate on a Borrower is able to address disaster
Military Reservist EIDL? losses using available personal or busi-
spaschal on DSKJM0X7X2PROD with CFR
The interest rate on a Military Re- ness resources or access to nonfederal
servist EIDL will be 4 percent per lending sources at reasonable rates and
annum or less. SBA will publish the in- terms.
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Small Business Administration § 123.701
Declared Disaster is a disaster event ganizations or governmental entities;
for which an IDAP-Eligible Disaster gifts; condemnation awards; and sal-
Declaration has been issued. vage (including any sale or re-use) of
Declared Disaster Area means the Pri- items of disaster-damaged property. If
mary Counties and the Contiguous an IDAP Borrower has voluntarily paid
Counties identified for a particular De- insurance recoveries to a recorded
clared Disaster. lienholder, the amount paid is consid-
Disaster Loan means a disaster loan ered to be Other Recoveries.
authorized by Section 7(b) of the Small Primary Counties means the counties
Business Act. or other political subdivisions identi-
IDAP Borrower is the obligor of an fied in the IDAP-Eligible Disaster Dec-
IDAP loan. laration as having been adversely af-
IDAP Lender is a financial institution fected by the disaster.
participating in the IDAP loan pro- SBA Administrative Disaster Declara-
gram, subject to the requirements of tion means a disaster declaration
this subpart. issued under § 123.3(a)(3) of this part.
IDAP Loan Program Requirements are SBA EIDL-Only Disaster Declaration
requirements imposed upon an IDAP means a disaster declaration issued
Lender by statute, SBA regulations, under § 123.3(a)(5) of this part.
any agreement the IDAP Lender has
Substantial Economic Injury exists
executed with SBA, SBA SOPs, SBA
when a business concern is unable to
procedural guidance, official SBA no-
meet its obligations as they mature or
tices and forms applicable to the IDAP
to pay its ordinary and necessary oper-
loan program, and loan authorizations,
ating expenses. Loss of anticipated
as such requirements are issued and re-
profits or a drop in sales is not consid-
vised by SBA from time to time.
ered substantial economic injury.
IDAP-Eligible Disaster Declaration
Term Period is the repayment period
means a Major Disaster Declaration,
that begins following:
SBA Administrative Disaster Declara-
tion or SBA EIDL-Only Disaster Dec- (i) SBA notice to the IDAP Lender of
laration in which SBA has indicated decline of the IDAP Borrower’s Dis-
that IDAP loans are available. aster Loan application;
Initial Period is the IDAP loan repay- (ii) Receipt by the IDAP Lender of
ment period that begins upon the ini- partial repayment of the IDAP loan
tial disbursement of an IDAP loan and from the proceeds of the Disaster Loan;
ends upon (i) full repayment of the or
IDAP loan from the proceeds of the (iii) Final disbursement of the IDAP
IDAP Borrower’s Disaster Loan; (ii) loan, whichever is later, and ends when
SBA notice to the IDAP Lender of de- the IDAP loan is repaid in full.
cline of the IDAP Borrower’s Disaster
Loan Application; or (iii) receipt by § 123.701 What is the application pro-
the IDAP Lender of partial repayment cedure for an IDAP loan?
of the IDAP loan from the proceeds of A prospective IDAP Borrower must
the Disaster Loan; provided that if the apply to an IDAP Lender for an IDAP
IDAP loan has not been fully disbursed loan by the application deadline for
at such time, the Initial Period shall prospective IDAP Borrowers estab-
not end until the IDAP loan is fully lished by SBA in the IDAP-Eligible
disbursed. Disaster Declaration. If the IDAP
Major Disaster Declaration means a Lender approves the application, it
disaster declaration issued under must submit a request for IDAP loan
§ 123.3(a)(1) of this part. approval to SBA by the application
Other Recoveries are other compensa- deadline for IDAP Lenders established
tion for disaster losses and include, but by SBA in the IDAP-Eligible Disaster
are not limited to: Proceeds of policies Declaration. SBA will issue an ap-
of insurance or other indemnifications; proval or a decline of the IDAP Lend-
grants or other reimbursement (includ- er’s request within 36 hours of receipt
spaschal on DSKJM0X7X2PROD with CFR
ing loans) from government agencies or by SBA. A prospective IDAP Borrower
private organizations; claims for civil will receive notice of approval or de-
liability against other individuals, or- cline of its loan application from the
471
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§ 123.702 13 CFR Ch. I (1–1–21 Edition)
IDAP Lender. Notice of decline will in- (including affiliates) when the Declared
clude the reasons. If an IDAP loan is Disaster commenced;
approved, a loan authorization will be (3) A consumer or marketing cooper-
issued. ative;
(4) Deriving more than one-third of
§ 123.702 What are the eligibility re- gross annual revenue from legal gam-
quirements for an IDAP loan? bling activities or a business whose
(a) Eligible IDAP applicants. To be eli- purpose for being is gambling regard-
gible for an IDAP loan, an applicant less of its ability to meet the one-third
business must meet all of the require- criteria established for otherwise eligi-
ments set forth below. The applicant ble concerns;
business must: (5) A loan packager which earns more
(1) Be located within a Declared Dis- than one-third of its gross annual rev-
aster Area; enue from packaging SBA loans;
(2) Have eligible disaster losses as (6) Principally engaged in teaching,
follows: instructing, counseling, or indoctri-
(i) For a Major Disaster Declaration, nating religion or religious beliefs,
if located in a Primary County, have whether in a religious or secular set-
sustained damage to real or business ting;
personal property in the Declared Dis- (7) Primarily engaged in political or
aster or, if located in a Primary or lobbying activities;
Contiguous County, have sustained (8) A private club or business that
Substantial Economic Injury as a di- limits the number of memberships for
rect result of the Declared Disaster; or reasons other than capacity;
(ii) For an SBA Administrative Dis- (9) Presents live performances of a
aster Declaration, have sustained dam- prurient sexual nature or derives di-
age to real or business personal prop- rectly or indirectly more than de mini-
erty in the Declared Disaster or sus- mis gross revenue through the sale of
tained Substantial Economic Injury as products or services, or the presen-
a direct result of the Declared Disaster; tation of any depictions or displays, of
or a prurient sexual nature;
(iii) For an SBA EIDL-Only Disaster (10) Engaged in the production or dis-
Declaration, have sustained Substan- tribution of any product or service that
tial Economic Injury as a direct result has been determined to be obscene by a
of the Declared Disaster; court;
(3) Have been a small business con- (11) Engaged in any illegal activity;
cern under the size requirements appli- (12) A government owned entity (ex-
cable to disaster loan assistance under cept for a business owned or controlled
part 121 of this chapter (including af- by a Native American tribe);
filiates) when the Declared Disaster (13) A business in which the IDAP
commenced; Lender or any of its Associates (as de-
(4) Together with affiliates and prin- fined in § 120.10) owns an equity inter-
cipal owners, not have Credit Else- est;
where; (14) Primarily engaged in subdividing
(5) Apply to SBA for a Disaster Loan real property into lots and developing
within the applicable deadline and be- it for resale on its own account;
fore any disbursement of the IDAP (15) Engaged in lending, multi-level
loan; and sales distribution, speculation, or in-
(6) Be creditworthy and demonstrate vestment (except for real estate invest-
reasonable assurance of repayment of ment with property held for rental
the IDAP loan. when the Declared Disaster occurred);
(b) Ineligible IDAP applicants. An ap- (16) Delinquent on any Federal obli-
plicant business is not eligible for an gation, including but not limited to
IDAP loan if it is: any Federal loans, contracts, grants,
(1) A non-profit or charitable con- student loans or taxes, or has a judg-
cern; ment lien for a Federal debt against its
spaschal on DSKJM0X7X2PROD with CFR
(2) A business that was not a small property;
business concern under the size re- (17) Located in a Special Flood Haz-
quirements of part 121 of this chapter ard Area (SFHA), as designated by the
472
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Small Business Administration § 123.703
Federal Emergency Management Agen- order, repayment agreement between
cy, and has not maintained required the holder and a custodial parent, or
flood insurance on its business prop- repayment agreement between the
erty (regardless of the type of disaster); holder and a state agency providing
(18) Located in a SFHA within a non- child support enforcement services;
participating community or a commu- (4) Is an undocumented (illegal)
nity under sanction; alien; or
(19) Located in a building that was (5) Is delinquent on any Federal obli-
newly constructed or substantially im- gation, including but not limited to
proved on or after February 9, 1989, and any Federal loans, contracts, grants,
is currently located seaward of mean student loans or taxes.
high tide or entirely in or over water;
(20) Located in a Coastal Barrier Re- § 123.703 What are the terms of an
source Area (COBRA); IDAP loan?
(21) A business that had a substantial (a) Guaranty percentage. The SBA
change of ownership (more than 50 per- guaranteed share of an IDAP loan is
cent) after the Declared Disaster and 85%.
no contract of sale existed prior to that (b) Maximum loan size. (1) If the
time; amount of an IDAP Borrower’s disaster
(22) A business that was established losses is $25,000 or less, the principal
after the Declared Disaster; amount of an IDAP loan must not ex-
(23) Relocating out of the Declared ceed the amount of disaster losses
Disaster Area; minus Other Recoveries.
(24) Primarily engaged in the produc- (2) If the amount of an IDAP Bor-
tion of food and fiber, ranching and rower’s disaster losses is more than
raising of livestock, aquaculture and $25,000, the principal amount of an
all other farming and agriculture-re- IDAP loan must not exceed $25,000
lated industries (except for a nursery minus Other Recoveries.
deriving less than 50 percent of annual (c) Disbursement. The disbursement
receipts from the production and sale period for an IDAP loan is generally up
of ornamental plants and other nursery to 30 days from the date of SBA ap-
products, a small agricultural coopera- proval of the IDAP loan. If the IDAP
tive or a small producer cooperative); Lender is notified before disbursement
or of the IDAP loan that the IDAP Bor-
(25) A sole proprietorship, unincor- rower has received Other Recoveries,
porated association, partnership or the IDAP Lender must decrease the ap-
limited liability company in which a proved amount of the IDAP loan by the
Member of Congress (or a household amount of the Other Recoveries. If the
member) has an ownership interest. IDAP Borrower’s Disaster Loan is ap-
(c) Character requirements. An appli- proved, SBA will contact the IDAP
cant business is not eligible for an Lender when SBA is ready to disburse
IDAP loan if any Associate (as defined the Disaster Loan. Upon receipt of such
in § 120.10) of the applicant business: notification by SBA, the IDAP Lender
(1) Is presently under indictment, on must cancel any remaining
parole or probation; undisbursed amount of the IDAP loan.
(2) Has ever been charged with, ar- (d) Repayment—(1) Initial Period. Dur-
rested for, convicted, placed on pretrial ing the Initial Period, an IDAP Bor-
diversion, and/or placed on any form of rower will pay interest only on the dis-
probation (including adjudication with- bursed principal balance of the IDAP
held pending probation) for any crimi- loan. If SBA approves the IDAP Bor-
nal offense other than a minor motor rower’s Disaster Loan application, SBA
vehicle violation (including offenses will require that the IDAP loan be re-
which have been dismissed, discharged, paid first from the proceeds of the Dis-
or not prosecuted); aster Loan. If the IDAP Borrower re-
(3) Is at least a 50 percent or more ceives Other Recoveries during the Ini-
owner of applicant business, and is tial Period, the IDAP Borrower must,
spaschal on DSKJM0X7X2PROD with CFR
more than 60 days delinquent on any in accordance with § 123.703(h), remit
obligation to pay child support arising the Other Recoveries to the IDAP
under an administrative order, court Lender, and the IDAP Lender will
473
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§ 123.704 13 CFR Ch. I (1–1–21 Edition)
apply the Other Recoveries to the (e) Interest rate—(1) Initial Period. The
IDAP loan. If the IDAP Borrower’s Dis- maximum interest rate an IDAP Lend-
aster Loan application is declined or if er may charge an IDAP Borrower dur-
the amount of the approved Disaster ing the Initial Period will be published
Loan is insufficient to repay the IDAP by SBA in the FEDERAL REGISTER from
loan in full, the remaining balance of time to time. This rate must be a fixed
the IDAP loan will be repaid during the rate.
Term Period as described in paragraph (2) Term Period. The maximum inter-
(2). The Initial Period ends upon (i) full est rate an IDAP Lender may charge
repayment of the IDAP loan from the an IDAP Borrower during the Term Pe-
proceeds of the IDAP Borrower’s Dis- riod will be published in the FEDERAL
aster Loan; (ii) SBA notice to the IDAP REGISTER from time to time. The IDAP
Lender of decline of the IDAP Bor- Lender may charge either a fixed or a
rower’s Disaster Loan Application; or variable rate during the Term Period.
(iii) receipt by the IDAP Lender of par- (f) Number of IDAP loans per small
tial repayment of the IDAP loan from business. No small business (including
the proceeds of the Disaster Loan; pro- affiliates) may obtain more than one
vided that if the IDAP loan has not IDAP loan per Declared Disaster. The
been fully disbursed at such time, the provisions of § 120.151 do not apply to
Initial Period shall not end until the IDAP loans.
IDAP loan is fully disbursed. If an (g) Personal guarantees. Holders of at
IDAP Borrower withdraws an applica- least a 20 percent ownership interest in
tion for a Disaster Loan, fails to close the IDAP Borrower must guarantee the
on an approved Disaster Loan or if the IDAP loan.
approved Disaster Loan is cancelled,
(h) Agreement to remit Other Recov-
the IDAP loan is immediately due and
eries. IDAP Borrowers must promptly
payable by the IDAP Borrower.
notify the IDAP Lender of the receipt
(2) Term Period. If SBA declines the of Other Recoveries, and must prompt-
IDAP Borrower’s Disaster Loan appli- ly remit the proceeds of Other Recov-
cation or the approved amount of the eries to the IDAP Lender. The IDAP
Disaster Loan is insufficient to repay Lender must apply the Other Recov-
the IDAP loan in full, the IDAP Bor- eries to the IDAP loan balance. SBA
rower must pay principal and interest does not require any additional collat-
on the IDAP loan, with the IDAP loan eral for IDAP loans.
balance to be fully amortized over a pe-
riod that is at least 10 years from the § 123.704 Are there restrictions on how
date of final disbursement of the IDAP IDAP loan funds may be used?
loan, but no more than 25 years from
the date of final disbursement. The (a) IDAP loan proceeds may only be
Term Period begins in the first month used for the following purposes:
following SBA notice to the IDAP (1) For a Major Disaster Declaration:
Lender of decline of the IDAP Bor- (i) If the IDAP Borrower is located in
rower’s Disaster Loan application, re- a Primary County, to restore or re-
ceipt by the IDAP Lender of partial re- place the IDAP Borrower’s real or busi-
payment of the IDAP loan from the ness personal property to its condition
proceeds of the Disaster Loan, or final before the Declared Disaster occurred
disbursement of the IDAP loan, which- and/or for working capital necessary to
ever is later. Balloon payments are not carry the IDAP Borrower until resump-
permitted. The IDAP Borrower may tion of normal operations and for ex-
prepay all or a portion of the principal penditures necessary to alleviate the
during the life of the loan without pen- specific economic injury, but not to ex-
alty. If the IDAP Borrower receives ceed that which the IDAP Borrower
Other Recoveries during the Term Pe- could have provided had the injury not
riod, the IDAP Borrower must, in ac- occurred; or
cordance with § 123.703(h), remit the (ii) If the IDAP Borrower is located
spaschal on DSKJM0X7X2PROD with CFR
Other Recoveries to the IDAP Lender, in a Contiguous County, for working
and the IDAP Lender will apply the capital necessary to carry the IDAP
Other Recoveries to the IDAP loan. Borrower until resumption of normal
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Small Business Administration § 123.705
operations and for expenditures nec- rower’s lease does not require the IDAP
essary to alleviate the specific eco- Borrower to make such repairs;
nomic injury, but not to exceed that (6) Make repairs to a condominium
which the IDAP Borrower could have unit owned by the IDAP Borrower;
provided had the injury not occurred. (7) Replace landscaping in excess of
(2) For an SBA Administrative Dis- $5,000 unless the disaster damaged
aster Declaration, if the IDAP Bor- landscaping fulfilled a functional need
rower is located in either a Primary or contributed toward the generation
County or a Contiguous County, to re- of business;
store or replace the IDAP Borrower’s (8) Repair or replace property not lo-
real or business personal property to cated within the Declared Disaster
its condition before the Declared Dis- Area at the time of the Declared Dis-
aster occurred and/or for working cap- aster;
ital necessary to carry the IDAP Bor- (9) Repay stockholder/Associate
rower until resumption of normal oper- loans, except where the funds were in-
ations and for expenditures necessary jected on an interim basis as a result of
to alleviate the specific economic in- the Declared Disaster and non-repay-
jury, but not to exceed that which the ment would cause undue hardship to
IDAP Borrower could have provided the stockholder/Associate;
had the injury not occurred. (10) Expand facilities or acquire fixed
(3) For an SBA EIDL-Only Disaster assets, except for replacement of dis-
Declaration, if the IDAP Borrower is aster-damaged fixed assets;
located in either a Primary County or (11) Pay for contractor malfeasance;
a Contiguous County, for working cap- (12) Replace damaged property that
ital necessary to carry the IDAP Bor- consists of cash or securities;
rower until resumption of normal oper- (13) Replace damaged property if the
ations and for expenditures necessary replacement value is extraordinarily
high and not easily verified, such as
to alleviate the specific economic in-
the value of antiques, artworks or
jury, but not to exceed that which the
hobby collections; or
IDAP Borrower could have provided
(14) Repair or replace damaged prop-
had the injury not occurred.
erty where the IDAP Borrower’s only
(b) IDAP loan proceeds may not be
interest is in the form of a security in-
used to:
terest, mortgage or deed of trust.
(1) Refinance or repay indebtedness
incurred prior to the Declared Disaster § 123.705 Are there any fees associated
(other than regularly due install- with IDAP loans?
ments); (a) IDAP Lender Fees. An IDAP Lend-
(2) Make payments on loans owned by er must not impose any fees or direct
another federal agency (including SBA) costs on an IDAP Borrower, except for
or a Small Business Investment Com- the following allowed fees or direct
pany licensed under the Small Business costs:
Investment Act; (1) The reasonable direct costs of liq-
(3) Pay, directly or indirectly, any uidation;
obligations resulting from a federal, (2) A late payment fee not to exceed
state or local tax penalty as a result of 5 percent of the scheduled IDAP loan
negligence or fraud, or any non-tax payment; and
criminal fine, civil fine, or penalty for (3) An application fee not to exceed
non-compliance with a law, regulation, $250. Notwithstanding the provisions of
or order of a federal, state, regional, or 13 CFR 103.5, no compensation agree-
local agency or similar matter; ment is required for the application
(4) Pay dividends, bonuses or other fee. If an undisbursed IDAP loan is can-
disbursements to owners, partners, of- celled pursuant to § 123.703(c), the IDAP
ficers or stockholders, except for rea- Lender may retain the application fee.
sonable remuneration directly related (b) SBA Fees. SBA will not impose
to their performance of services for the any guarantee fees on an IDAP Lender
spaschal on DSKJM0X7X2PROD with CFR
business; making an IDAP loan.
(5) Make repairs on a building rented (c) Prohibition on paid loan packagers,
by the IDAP Borrower if the IDAP Bor- referral agents or brokers. Other than the
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§ 123.706 13 CFR Ch. I (1–1–21 Edition)
application fee set forth in (a)(3) of this IDAP loan program. An IDAP Lender is
section, no IDAP Lender or third party responsible for all IDAP loan decisions
may charge an IDAP Borrower a fee to regarding eligibility (including size)
assist in the preparation of an IDAP and creditworthiness. In determining
loan application or application mate- creditworthiness, an IDAP Lender
rials. No third party may charge an must use the existing practices and
IDAP Borrower or an IDAP Lender a procedures that the IDAP Lender uses
referral fee or broker’s fee in connec- for its non-SBA guaranteed commer-
tion with an IDAP loan. cial loans of a similar size. The IDAP
Lender’s existing practices and proce-
§ 123.706 What are the requirements dures must be appropriate and gen-
for IDAP Lenders? erally accepted, proven and prudent
(a) IDAP Lenders. An IDAP Lender credit evaluation processes and proce-
must be a 7(a) Lender (as defined in dures, which may include credit scor-
§ 120.10). Notwithstanding the provi- ing, and must ensure that there is rea-
sions of § 120.470(a), a Small Business sonable assurance of repayment. In dis-
Lending Company (SBLC) that is a 7(a) bursing the IDAP loan, the IDAP Lend-
Lender may make IDAP loans. An er must use the same disbursement
IDAP Lender must sign a supplemental procedures and documentation as it
Loan Guarantee Agreement for the uses for its similarly sized non-SBA
IDAP loan program. An IDAP Lender guaranteed commercial loans. An IDAP
must comply and maintain familiarity Lender is also responsible for con-
with the IDAP Loan Program Require- firming that all IDAP loan processing,
ments, as such requirements are re- closing, servicing and liquidation deci-
vised from time to time. IDAP Loan sions are correct and that all IDAP
Program Requirements in effect at the Loan Program Requirements have been
time that an IDAP Lender takes an ac- followed.
tion in connection with a particular (c) IDAP Lender reporting. An IDAP
IDAP loan govern that specific action. Lender must report on its IDAP loans
With respect to their activities in the in accordance with requirements estab-
IDAP loan program, IDAP Lenders are lished by SBA from time to time.
subject to the requirements of §§ 120.140 (d) Servicing. Each IDAP Lender must
(What ethical requirements apply to service all of its IDAP loans in accord-
participants?), 120.197 (Notifying SBA’s ance with the existing practices and
Office of Inspector General of suspected procedures that the IDAP Lender uses
fraud), 120.400 (Loan Guarantee Agree- for its non-SBA guaranteed commer-
ments), 120.410 (Requirements for all cial loans. In all circumstances, such
participating Lenders), 120.411 (Pref- practices and procedures must be com-
erences), 120.412 (Other services Lend- mercially reasonable and consistent
ers may provide Borrowers), and 120.413 with prudent lending standards and in
(Advertisement of relationship with accordance with IDAP Loan Program
SBA) of this chapter. An IDAP Lender Requirements. SBA’s prior written
and its contractor(s) are independent consent is required for servicing ac-
contractors that are responsible for tions that may have significant expo-
their own actions with respect to an sure implications for SBA. SBA may
IDAP loan. SBA has no responsibility require written notice of other serv-
or liability for any claim by an IDAP icing actions it considers necessary for
Borrower, guarantor or other party al- portfolio management purposes.
leging injury as a result of any alleg- (e) Liquidations. Each IDAP Lender
edly wrongful action taken by an IDAP must be responsible for liquidating its
Lender or an employee, agent or con- defaulted IDAP loans. IDAP loans will
tractor of an IDAP Lender. be liquidated in accordance with the
(b) Delegated authority. An IDAP loan existing practices and procedures that
must be processed, serviced and liq- the IDAP Lender uses for its non-SBA
uidated under an IDAP Lender’s dele- guaranteed commercial loans. In all
gated authority provided by the supple- circumstances, such practices and pro-
spaschal on DSKJM0X7X2PROD with CFR
mental Loan Guarantee Agreement for cedures must be commercially reason-
the IDAP loan program. Non-delegated able and consistent with prudent lend-
processing is not available for the ing standards and in accordance with
476
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Small Business Administration Pt. 124
IDAP Loan Program Requirements. PART 124—8(a) BUSINESS DEVEL-
IDAP loans with de minimis value may, OPMENT/SMALL DISADVAN-
at the IDAP Lender’s request and with TAGED BUSINESS STATUS DETER-
SBA’s approval, be liquidated by SBA MINATIONS
or its agent(s). Significant liquidation
actions taken on IDAP loans must be Subpart A—8(a) Business Development
documented. The reimbursement of
IDAP Lender liquidation expenses is PROVISIONS OF GENERAL APPLICABILITY
limited to the amount of the recovery Sec.
on the IDAP loan. 124.1 What is the purpose of the 8(a) Busi-
(f) Purchase requests. An IDAP Lender ness Development program?
may request SBA to purchase the guar- 124.2 What length of time may a business
anteed portion of an IDAP loan when participate in the 8(a) BD program?
124.3 What definitions are important in the
there has been an uncured payment de- 8(a) BD program?
fault exceeding 60 days or when the 124.4 What restrictions apply to fees for ap-
IDAP Borrower has declared bank- plicant and Participant representatives?
ruptcy. IDAP loans are subject to the
7(a) loan program requirements of ELIGIBILITY REQUIREMENTS FOR PARTICIPA-
TION IN THE 8(a) BUSINESS DEVELOPMENT
§§ 120.520 (Purchase of 7(a) loan guaran- PROGRAM
tees), 120.521 (What interest rate ap-
plies after SBA purchases its guaran- 124.101 What are the basic requirements a
concern must meet for the 8(a) BD pro-
teed portion?), 120.522 (Payment of ac- gram?
crued interest to the Lender or Reg- 124.102 What size business is eligible to par-
istered Holder when SBA purchases the ticipate in the 8(a) BD program?
guaranteed portion), 120.523 (What is 124.103 Who is socially disadvantaged?
the ‘‘earliest uncured payment de- 124.104 Who is economically disadvantaged?
fault’’?), 120.524 (When is SBA released 124.105 What does it mean to be uncondi-
from liability on its guarantee?), tionally owned by one or more disadvan-
taged individuals?
120.542 (Payment by SBA of legal fees
124.106 When do disadvantaged individuals
and other expenses) and 120.546 (Loan control an applicant or Participant?
asset sales) of this chapter. 124.107 What is potential for success?
(g) Prohibition on secondary market 124.108 What other eligibility requirements
sales, securitizations, loan participations apply for individuals or businesses?
and loan sales. An IDAP Lender may 124.109 Do Indian tribes and Alaska Native
Corporations have any special rules for
not sell the guaranteed portion of an
applying to and remaining eligible for
IDAP loan in the secondary market, the 8(a) BD program?
securitize the unguaranteed portion of 124.110 Do Native Hawaiian Organizations
an IDAP loan, participate any portion (NHOs) have any special rules for apply-
of an IDAP loan with another lender, ing to and remaining eligible for the 8(a)
or sell all of its interest in an IDAP BD program?
loan. 124.111 Do Community Development Cor-
porations (CDCs) have any special rules
(h) Loan pledges. An IDAP Lender for applying to and remaining eligible for
may pledge an IDAP loan subject to the 8(a) BD program?
the 7(a) loan program requirements of 124.112 What criteria must a business meet
§§ 120.434 and 120.435 of this chapter. to remain eligible to participate in the
(i) Oversight. All IDAP Lenders are 8(a) BD program?
subject to the supervision and enforce- APPLYING TO THE 8(a) BD PROGRAM
ment provisions applicable to 7(a)
124.201 May any business submit an applica-
Lenders in part 120, subpart I of this
tion?
chapter (§§ 120.1000 through 120.1600). In 124.202 How must an application be filed?
addition, an IDAP Lender that is an 124.203 What must a concern submit to
SBA Supervised Lender (as defined in apply to the 8(a) BD program?
§ 120.10) is subject to the requirements 124.204 How does SBA process applications
for 8(a) BD program admission?
spaschal on DSKJM0X7X2PROD with CFR
of §§ 120.460 through 120.490, as applica-
ble. 124.205 Can an applicant ask SBA to recon-
sider SBA’s initial decision to decline its
application?
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