The SBA is authorized to provide up to $2 million in low-interest-rate, long-term disaster loans per business to cover physical or economic damage. But the agency depends on Congress to replenish its funds.
By Brandon Kochkodin, Forbes Staff
The first of the wildfires broke out 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 was still spreading and four major blazes had burned nearly 40,000 acres in the L.A. area, taking at least 24 lives, destroying or damaging more than 12,000 structures and causing economic damages now estimated at up to $150 billion. The Palisades, with its canyon and ocean views, was known for its high-end houses, ranging from sleek modern designs to classic California Spanish-style estates. Another devastated neighborhood, Altadena, 35 miles to the East, had some more modest homes that families had owned for generations.
But the fire hasn’t just cost lives and leveled housing—it’s also taken 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 particularly those dependent on local customers, now face the tough decision about 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 looking for community support to rebuild. Fox’s, a diner in Altadena with roots stretching back to 1955, and the Reel Inn, a casual seafood spot in Malibu, are among those that 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 likely now struggling themselves.
The Small Business Administration’s (SBA) disaster loan program could offer a longer and more substantial lifeline to help the restaurants reopen. 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 from a declared disaster. Eligible businesses include not only those scorched by the fire, but also some indirectly impacted, like suppliers or businesses that rely on devastated neighborhoods for customers. Among the benefits of SBA direct disaster loans: Interest doesn’t start to accrue 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 replace their primary residences, while homeowners and renters can borrow up to $100,000 to replace personal property. These loans are meant to cover what insurance doesn’t.)
The SBA’s disaster loan program, started in 1953, now 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 borrowings are normally capped at $2 million regardless of whether a business uses one or both programs. (The SBA is allowed to boost the $2 million cap in certain cases where substantial jobs are at risk.)
The SBA loans can be repaid over as long as 30 years, giving a rebuilding business plenty of time to get back on its feet. These are direct loans, not loan guarantees, meaning that applicants don’t have to get approval from a local bank, but they do need to have adequate credit scores and to put up collateral for loans over $25,000.
On January 7th, the Small Business Administration declared Los Angeles County a disaster area, opening the door for businesses there to apply for physical and economic damage loans and those in contiguous affected counties to apply to cover economic damage. The next day, President Biden, through the Federal Emergency Management Agency, approved a major disaster declaration for the county. 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 are more likely to be directed toward helping local businesses recover.
The SBA’s disaster loan program entered the new fiscal year (which began on Oct. 1) with just $339 million in its account, $94 million of which was already spoken for, according to data from USASpending.gov.
While that might sound alarming, it shouldn’t be—so long as the Southern California fires don’t turn into a political football. The program isn’t funded with major disasters in mind. Instead, the assumption is that after a major disaster strikes, Congress will act quickly to pump in what’s needed. Most of the time, that does happen–but not always, and not necessarily as fast 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 15th. 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 on loans were left in limbo—a reminder that swift action isn’t guaranteed. It is unclear how much of that fresh $2.25 billion will be left for California applicants after all the applications linked to Milton and Helene are processed; the SBA didn’t respond to requests for information on the funding available. A Democratic Senate staffer told Forbes that the SBA reported having billions in available funds as of last week. Adding to the uncertainty are statements made by some Republicans (including President-elect Trump) blaming California officials for the plight of the burned out communities around Los Angeles.
“Congress is monitoring the situation closely as state and local response efforts continue,” says a House Republican leadership aide. “Once the situation is under control, state and local officials will assess the full scope of the damage. It is much 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 ongoing, 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 fell to 53 days after Hurricanes Harvey, Irma, and Maria in 2017, according to a 2020 report from the Government Accountability Office (GAO). However, as of this month, the agency is still processing nearly two-thirds of the applications it received after Hurricanes Helene and Milton—a lengthier backlog at least partly tied to Congress’ delay providing additional funding.
The deadline to apply for a physical damage loan due to the fires in Los Angeles is March 10th. For an economic injury loan, it’s October 8th, 2025. But both deadlines could be extended, depending on how long it takes to fully extinguish the fires and for Congress to allocate any needed additional funds to the program.
While these loans can be a lifeline, they’re not without risks. For a small business owner already facing the fallout of a major disaster, the idea of taking on debt might feel overwhelming. Will borrowing to rebuild create a path to recovery, or just add more pressure in an already difficult time? It’s a question every business owner needs to weigh carefully. That said, studies show businesses that take disaster loans are more likely to survive.
A study published in 2024 by the Center for Economic Studies, part of the U.S. 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 went out of business during the study’s observation period). The loans helped cover immediate costs like repairs and operations, with recipients experiencing faster revenue recovery.
Maria Watson, a professor at the University of Florida’s School of Construction Management, studied the SBA disaster loan program in the aftermath of Hurricane Ike, which hit Galveston, Texas, in 2008. Her research found similar results: businesses that received disaster assistance were more likely to survive than those that didn’t. The data showed a clear advantage for 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 SBA loans help businesses survive, taking on more debt isn’t an easy decision. “It is tough about whether you should take on this additional debt when your revenue stream is up in the air, when population changes are happening.” (Remember, there’s no banker that 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,” Watson says. “Make sure you really have thought about your business plan and what recovery will look like in your area.”