Loans from SBA and other federal organizations may be tedious but worth it.
When Superstorm Sandy struck New Jersey in October 2012 , Morgan Marina, a family-owned business for more than 50 years, suffered severe damage. Sixty percent of the pilings that held the docks in place were gone, and another 20 percent of them were damaged and had to be reset. All of the docks were picked up and floated away. None could be reused.
Joe Walter, one of the family members who owns the marina, says his three biggest expenses were fixing the business’s electricity, ordering new docks and replacing the pilings. However, the marina also suffered damage to machinery and restrooms, equipment had to be replaced and the property needed to be re-landscaped.
Even though Walter was able to reopen for the high season on May 1, 2013, he needs more cash flow to get the marina back to where it was pre-Sandy. That’s where his pending $350,000 loan from the Small Business Administration will come in handy.
While some affected businesses preferred not to go through the lengthy process of applying for a SBA loan, choosing bank loans instead, Walter says it was worth it. The loan he applied for had a 4 percent rate, which he says was between 2 and 5 percent lower than bank loans. In addition, his loan did not carry a penalty for prepayment, as the bank loans did, and, significantly, he didn't have to put up his home as collateral.
According to its website, the SBA provides low-interest disaster loans to businesses of all sizes. "SBA disaster loans can be used to repair or replace the following items damaged or destroyed in a declared disaster: real estate, personal property, machinery and equipment, and inventory and business assets," the website says. The site also lists areas that have been declared disaster areas. The agency does not make the loans itself but guarantees those made by lenders.
Walter cites several factors that helped him along the way:
1. Be prepared to wait.
For Walter, it was a six-month process, which sometimes occupied enough time to make it a full-time job. He also says that a local trade association, the Marine Trades Association of New Jersey (MTANJ), was hugely helpful to him. It was at an association meeting conducted by FEMA that he learned that his business could be eligible for a SBA disaster-relief loan.
"The process required a lot of information to be gathered and then transferred to the SBA for them to look deeper into your background," Walter says. "Upon reflection, the thing that struck me most is if I wasn't available to do this for the marina, I don’t know how we would have done it, because it really required so many hours to go back and forth with things with the loan coordinator."
"There were people along the way that told me stories about other people who tried for these loans and weren't successful," he says. "The process was tedious. If we went to a bank, we would have gotten a loan a lot quicker but at a lot higher percent and with prepayment penalties, and they would be happy to take your home."
2. Protect Your Records.
Walter was fortunate in that one of the buildings where the business’s records were kept was on higher ground and went undamaged. His accountant also had PDF files of a lot of financial documents, and he was able to email those to the SBA.
Having financial records is of utmost importance, agrees Marine Trades Association of New Jersey Executive Director Melissa Danko. Keep records in a safe and secure place, where a business owner will have access to them when needed, she advises. Consider keeping electronic copies of records, perhaps scanned copies, that could be stored on a server or on a specialized software service, she adds. In the event that computer hard drives are ruined, as happened in Sandy, the documents would remain available.
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3. Leverage Association Memberships.
Danko says that within a few days of the storm her organization began contacting members to see what their needs were and set up a website with relevant information. The organization distributed information from state and federal agencies, chambers of commerce, other business associations, the SBA and the U.S. Economic Development Association. MTANJ also provided its members with emergency contacts, FEMA contacts, and guidance on insurance matters.
"Obviously, associations like ours and other business associations have those direct contacts and resources available," she says. "We were able to get that stuff out to our members immediately."