Small Business: SBA loans aid soldiers' return to civilian business

Sam Jones is the Region VII SBA Administrator.

I know I've discussed the Military Reservist Economic Injury Disaster Loan (MREIDL) Program in previous columns, but I want to review the program in light of returning battalions from Iraq, like the 203rd Engineer Battalion. It seems right, in light of the sacrifice they and their families have made, to be as thorough as possible in letting these soldiers know about the kinds of federal help available to make their transition back into civilian life as seamless as possible.

The U.S. Small Business Administration is making low-cost, low-interest loans available to military reservists and any employers affected by their call-up for up to 90 days after their discharge date from active service. In the next three months, applying for one of these loans may mean the difference between the ability to rebuild a small business or not and that affects us all. We have already received eight applications under the program for Missouri and approved $623,500 in MREIDL loans to help Missouri businesses recover.

The purpose of MREIDL is to provide funds to eligible small businesses to meet ordinary and necessary operating expenses that it could have met, but did not meet because an essential employee was called to active duty. The loans are intended only to provide the amount of working capital needed by a small business to pay its necessary obligations as they mature until operations return to normal after the essential employee is released from active military duty. The purpose of these loans is not to cover lost income or lost profits. MREIDL funds cannot be used to take the place of regular commercial debt, to refinance long-term debt or to expand the business.

SBA must, by law, determine whether credit in an amount needed to accomplish full recovery is available from non-government sources without creating an undue financial hardship to the applicant. Generally, SBA determines that more than 90 percent of disaster loan applicants do not have sufficient financial resources to recover without the assistance of the federal government.

Because the MREIDL loans are taxpayer subsidized, the agency must have a reasonable assurance that repayment is possible. Loans of $5,000 or less do not require collateral, but those more than that amount, and up to $1.5 million, require collateral to the extent that it is available. Normally, the collateral would consist of a first or second mortgage on the business property and personal guaranties by the principals of the business are required.

The SBA will not decline a loan for lack of collateral, but a business owner must pledge available collateral. The law authorizes loan terms up to a maximum of 30 years, with SBA determining the term of each loan in accordance with the borrower's ability to repay. Based on the financial circumstances of each borrower, SBA determines an appropriate installment payment amount, which in turn determines the actual term.

To protect each borrower and SBA, SBA requires borrowers to obtain and maintain appropriate insurance.

Borrowers of all SBA secured loans (and economic injury loans over $5,000) must purchase and maintain full hazard insurance for the life of the loan. Borrowers whose property is located in a special flood hazard area must also purchase and maintain flood insurance for the full insurable value of the property for the life of the loan.

While interest rates on these loans are determined by formulas set by law and recalculated quarterly, the maximum interest rate for this program is 4 percent, making them quite attractive and, SBA hopes, useful to our troops and those who employ them. Those who believe they may be eligible for this loan program may review the loan forms online at: www.sba.gov/disas ter_recov/loaninfo/militaryreservist.html. Assistance also is available from the Springfield SBA branch office at 417-890-8501.