The SBA is authorized to provide up to $2 million in low-interest, long-term disaster loans per business to cover physical or economic damage. But the agency depends on Congress to replenish its funds.
By Brandon KochkodinForbes Staff
The first of the wildfires erupted in the Pacific Palisades neighborhood of Los Angeles last Tuesday morning, tearing through dry brush in the Santa Monica Mountains. As of Sunday, the Palisades fire continued to spread and four big fires burned nearly 40,000 acres in the LA area, claimed at least 24 lives, destroyed or damaged more than 12,000 structures, and caused economic damage that now amounts to $150 billion. The Palisades, with its canyon and ocean views, was known for its luxury homes, which ranged from sleek modern designs to classic California Spanish-style estates. Another blighted neighborhood, Altadena, 35 miles to the East, had some more modest homes that had been owned by families for generations.
But the fire didn’t just take lives and level housing – it also took out thousands of shops and restaurants and damaged the business prospects of those still standing. In the Palisades 90272 zip code alone there were more than 1,000 businesses before the fire. Across Southern California, business owners, and especially those who depend on local customers, now face the difficult decision of whether to rebuild and reopen, gambling that demand will recover quickly enough to make it worth the risk.
Some restaurants destroyed by the fires are already seeking community support to rebuild. Fox’sa diner in Altadena with roots stretching back to 1955, and the Reel Inna casual seafood spot in Malibu, is among those who have started GoFundMe campaigns to help their employees, the Los Angeles Times reported. Fox’s has already raised $34,555 and the Reel Inn $135,337. But many longtime patrons are probably struggling now themselves.
The Small Business Administration (SBA) disaster loan program could provide a longer and more substantial lifeline to help reopen the restaurants. It provides direct loans of up to $2 million at rates as low as 4% to businesses that have suffered physical damage or economic losses due to a declared disaster. Eligible businesses include not only those scorched by the fire, but also some indirectly affected, such as suppliers or businesses that rely on devastated neighborhoods for customers. Some of the benefits of SBA direct disaster loans: Interest doesn’t start accruing until a year after the business gets the money.
(Surprisingly, nonprofits and even individual homeowners and renters can also qualify for SBA disaster loans, with rates as low as 3.625% for nonprofits and 2.563% for homeowners and renters. Homeowners can borrow up to $500,000 to fix or renovate their primary residences replace, while homeowners and renters can borrow up to $100,000 to replace personal These loans are intended to cover what insurance doesn’t cover.)
The SBA’s disaster loan program has in 1953now makes two main types of loans available to businesses: physical damage loans and economic injury loans. Physical damage loans can provide up to $2 million to repair or replace buildings, equipment or inventory. Economic injury loans help with day-to-day expenses when sales drop after a disaster, and also have a limit of $2 million. A business can apply for both loans, but total loans are usually limited to $2 million, regardless of whether a business uses one or both programs. (The SBA is allowed to increase the $2 million limit in certain cases where significant jobs are at risk.)
The SBA loans can be repaid over as long as 30 yearswhich gives a rebuilding business enough time to get back on its feet. These are direct loans, not loan guarantees, which means applicants don’t need to get approval from a local bank, but they do need to have adequate credit scores and to post collateral for loans over $25,000.
On January 7, the Small Business Administration declare Los Angeles County a disaster area, opening the door for businesses there to apply for physical and economic damage loans and those in adjacent affected counties to apply to cover economic damage. The next day, President Biden, through the Federal Emergency Management Agency, a major disaster declaration for the province. This step is critical because it makes it easier for the federal government to allocate more funds to the SBA’s disaster loan program. With the major disaster declaration in place, additional federal resources will be more likely to help local businesses recover.
The SBA’s disaster loan program entered the new fiscal year (which began Oct. 1) with just $339 million in its account, $94 million of which has already been called, according to data from USASpending.gov.
While that may sound alarming, it shouldn’t be — as long as the fires in Southern California don’t turn into a political football. The program is not funded with major disasters in mind. Instead, the assumption is that after a major disaster strikes, Congress will act quickly to pump in what is needed. Most of the time, it does—but not always, and not necessarily as quickly as business owners desperate to rebuild might like.
After hurricanes Helene and Milton hit in late September and early October respectively, the fund ran dry on October 15. The SBA told businesses to keep applying anyway, but it took Congress until mid-December to approve an extra $2.25 billion in funds for the program. For weeks, those waiting for loans were left in limbo – a reminder that quick action is not guaranteed. It’s unclear how much of that fresh $2.25 billion will be left for California applicants after all the applications tied to Milton and Helene are processed; the SBA did not respond to requests for information about the available funding. a Democratic Senate staffer told Forbes that the SBA reported that it had billions in available funds as of last week. Adding to the uncertainty are statements made by some Republicans (including President-elect Trump) who blame California officials for the plight of the burned-out communities around Los Angeles.
“Congress is closely monitoring the situation as state and local response efforts continue,” said a House Republican leader. “Once the situation is under control, state and local officials will assess the full extent of the damage. It is far too early to know whether additional federal resources will be needed.” Similarly, a Senate staffer working for a key Democrat noted that with damage assessments underway, it’s unknown when the SBA might need more resources.
But it’s not just the speed of Congressional approval for any needed additional funds that sometimes keeps anxious business owners waiting. The SBA has faced criticism in the past for being slow to process loans. After Superstorm Sandy in 2012, it took an average of 66 days to process disaster loans, a number that dropped to 53 days after Hurricanes Harvey, Irma and Maria in 2017, according to a 2020 report from the Government Accountability Office (GAO). As of this month, however, the agency is still processing nearly two-thirds of the applications it received after Hurricanes Helene and Milton — a longer backlog that is at least partly tied to Congress’s delay in providing additional funding.
The deadline to apply for a physical damage loan due to the fires in Los Angeles is March 10. For an economic injury loan, that’s October 8, 2025. But both deadlines could be extended, depending on how long it takes to fully extinguish the fires and for Congress to allocate any necessary additional funds to the program.
While these loans can be a lifeline, they are not without risks. For a small business owner already facing the effects of a major disaster, the idea of going into debt can feel overwhelming. Will borrowing to rebuild create a path to recovery, or just add more pressure to an already difficult time? This is a question every business owner must weigh carefully. That said, studies show businesses that take out disaster loans are more likely to survive.
A study published in 2024 by the Center for Economic Studiespart of the US Census Bureau, analyzed the effects of SBA disaster loans on small businesses. It found that businesses receiving these loans were 13 percentage points more likely to remain operational after a disaster than those that applied for but were denied such credit (21% of those denied had during the study’s observation period went out of business). The loans helped cover immediate costs such as repairs and operations, with recipients experiencing faster income recovery.
Maria Watson, a professor at the University of Florida’s School of Construction Management, studied the SBA disaster loan program in the wake of Hurricane Ike, which hit Galveston, Texas, in 2008. research found similar results: businesses that received disaster relief were more likely to survive than those that did not. The data showed a clear benefit to recipients, and even businesses that relocated after the disaster had higher survival rates if they took the loans.
Watson says that while her research shows that SBA loans help businesses survive, taking on more debt is not an easy decision. “It’s difficult whether you should take on this additional debt when your income stream is up in the air, when population changes are happening.” (Remember, there is no banker who has to approve these direct loans – it’s up to the business owner to decide if a loan makes sense.)
Still, Watson encourages small businesses and homeowners to at least apply if they’re eligible.
“You can always say no if you’re approved,” says Watson. “Make sure you’ve really thought about your business plan and what recovery will look like in your area.”