Imagine this: You’ve finally returned to your home after evacuating for a storm, only to discover that months of recovery lie ahead. You may need to strip the place to the studs, or demolish it altogether, before you can start rebuilding. You need money to move on with your life, and you know that your insurance company may take way too long to pay out — if you have insurance coverage at all — while federal grants may be far down the pipeline.
When you contact the Federal Emergency Management Agency for advice, they send you to the Small Business Administration, which acts quickly to offer loans in federal disasters. Months later, when federal grants become available, you’re told you aren’t eligible, because you already took out a loan.
Instead of receiving a grant provided to disaster victims, you get to pay back a loan, with interest — all because you wanted to be proactive about rebuilding.
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If that sounds bananas to you, I have bad news, because that’s exactly how the system works now.
If you are approved for a low-interest emergency loan through the SBA — whether or not you take it — the amount of that loan is deducted from any federal disaster grants that you might be eligible for. If you were entitled to $100,000 to help rebuild but you took out a $70,000 loan, the government will only give you $30,000. Even if you only borrowed $20,000 — or nothing.
Given that many individuals seeking aid are low-income, this presents a significant hardship. People may lose their homes altogether if saddled with loans they can’t realistically repay — especially when loans may not even cover the costs of construction and recovery. In some cases, the loan may effectively act like a second mortgage.
This situation arises because of a very real concern: double-dipping.
The federal government is worried that unscrupulous people, or organizations, might take out loans and then apply for grants, eating up recovery resources. However, critics say this creates a situation where people are effectively penalized for not waiting. Many people aren’t aware of the potential implications of accepting an SBA loan, though FEMA claims it discloses this information.
In Texas, over $100 million worth of SBA loans are already being processed, and Hurricane Irma recovery in Florida will likely include many more. Advocates from regions that have been caught in this trap, like Sandy survivors, have been issuing warnings and urging legislative reform to address the problem.
The most basic fix would require that when calculating grant eligibility, government agencies count the actual amount of an SBA loan, not how much someone could have borrowed. In these instances, an SBA loan could act like a funding bridge to help someone get started with recovery, and a grant further down the line could help them stay on track.
Another solution would be to convert SBA loans to grants, allowing low-income people without adequate insurance coverage to quickly access grant money to assist with recovery. That would have the added benefit of boosting economic growth in the wake of a major storm by creating a cleanup and construction boom.
With climate change making similar storms more frequent — and potentially more severe — in the future, Congress must address this issue in a timely manner. Helping communities recover and stay financially solvent is in everyone’s best interest.