SBA sharply boosts its disaster loans to homeowners
When Ahron and Bonnie Kliger's home was damaged by a 1994 earthquake in Northridge, Calif., the Woodland Hills couple expected their homeowners insurance to cover the cost of repairs -- about $90,000. But they wound up in a dispute with their insurance company and had to turn to an unexpected lender: the U.S. Small Business Administration.</br></br>Best known for guaranteeing small-business loans and offering advice to entrepreneurs, the SBA is sharply increasing its lending to homeowners, such as the Kligers, through its Office of Disaster Assistance. Today, the home-loan portion of the SBA's disaster-loan portfolio exceeds $3.14 billion, more than double its level three years ago. In contrast, the business loans in the portfolio total $3.45 billion, a 47% increase in three years.</br></br>SBA officials attribute the explosion in home lending to Mother Nature. Since 1993, disasters such as the Northridge earthquake, floods in the Middle West and Hurricane Andrew in Florida have created an unprecedented, concentrated demand for the low-interest loans administered by the SBA. (The interest rates are about 4% annually for business owners and individual borrowers.)</br></br>In many of the latest disasters, homeowners and renters were hit disproportionately hard, prompting huge waves of lending to individual borrowers, says Bernard Kulik, an SBA associate administrator who oversees the disaster office. After Hurricane Andrew swept through Florida in 1992, nearly 16,000 homeowners and renters there borrowed a total of $252.7 million. Businesses in the state borrowed $217.2 million. One reason for the high homeowner use: "I would say that businesses pay more attention to insurance than homeowners do," Mr. Kulik says.</br></br>Officials at the agency stress that the loan program isn't a giveaway: It estimates that 35% to 45% of all loan applicants are rejected because of credit problems, failure to provide sufficient information or other reasons. Homeowners generally can borrow no more than $200,000 to restore their homes to original condition. In addition, homeowners and renters can qualify for as much as $40,000 to replace personal property.