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UPDATED: Dec 12, 2012
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It has been weeks since Hurricane Sandy ravaged the Eastern border — killing residents, destroying homes and ruining local business efforts to remain afloat.
But two major organizations have stepped in by assuring that business loans are available when needed: Bank of America and the Small Business Administration.
Bank of America committed $20 million in funding for 13 Community Development Financial Institutions (CDFIs) in order to provide small business loans for residents affected by Hurricane Sandy.
The loans were provided to the CDFIs at zero-percent interest and offered deferred principal repayment in order to accelerate relief efforts. CDFIs are private financial groups that provide loans for housing, businesses, communities and economic revitalization programs.
Dan Letendre, CDFI executive for Bank of America, told loans.org that the company is proud to assist the various CDFI missions.
“In times of need, like what we saw after Hurricane Sandy, the burden on CDFIs to provide support to families and businesses grows dramatically and we wanted to help them meet the need and respond to communities,” Letendre said.
How the Program Operates
Each separate loan of the 13 offered CFDIs is based upon the capital amount that is available for disaster relief. The institutions can each request the loan amount they need.
Bank of America will distribute the full loan, worth a total of $20 million, to the various recipients. Aside from the small parameters requiring that the funding goes to Hurricane Sandy rebuilding efforts, Bank of America does not dictate who should receive the multitude of business loans available from the CDFIs. After the loans are given to each CDFI, the individual institutions are in charge of implementing their own lending requirements for business owners and homeowners.
This openness to lending benefits all parties in the end.
“Because CFDI are local institutions with a mission to support local communities, they can justify making more affordable — and to some eyes riskier — loans because they have deep knowledge of the communities they support,” Letendre said. “CFDIs invest in people and businesses they know and therefore trust to repay the loans.”
One recipient of the Bank of America investment is New York-based Accion East.
“Investments like these are allowing Accion to serve most credit challenged and informal sector of the New York economy,” Alejandra Boggiano, Communications Manager at Accion East and Online, told loans.org.
The program only required a credit score of above 525, an extremely low standard for most business loans. To date, Accion has closed four loans totaling $48,000. Three of the four businesses include Meskel Ethiopian Restaurant, Saniell Commercial Cleaning Services and Papa’s Country Porch.
For Meskel Ethiopian Restaurant owner, Teferi Ayalew, it took 11 days for the restaurant to reopen. Ayalew said the business lost about $800-900 each day it remained closed due to a loss of all the refrigerated food and a ruined computer and compressor.
Another recipient, New Jersey Community Capital, was unable to formally comment due to pending Bank of America funding decisions.
Accion East and Online received $500,000 to lend out under the Bank of America program and is currently working on approving 15 other disaster business loans.
Help in Numbers
Bank of America is not the only large resource of post-disaster funding for businesses.
Many residents and local businesses were approved for disaster business loans from the Small Business Administration (SBA).
The SBA told loans.org that as of Dec. 10, 2012, the organization approved 3,087 disaster loans to homeowners, renters and businesses affected by Hurricane Sandy throughout New York, New Jersey, Connecticut, Rhode Island and North Carolina. The loans totaled $192.3 million.
Home disaster loans trumped disaster business loans with a total of 2,920 loans for $176.9 million. The SBA received and approved only 167 disaster business loans totaling $15.4 million.
Carol Chastang, SBA Office of Communications and Public Liaison, said the SBA cannot make an accurate prediction of all disaster loans approved for Hurricane Sandy due to the extent of the damage. Additionally, deadlines for the physical disaster loans are extended in New York, and could be extended in Connecticut and New Jersey.
“Comparing disasters, in terms of SBA disaster lending, is an inexact science because of the economic and infrastructural demographics of any two areas [such as the Gulf Coast and Northeast] are vastly different,” Chastang said to loans.org.
She said businesses were impacted due to the power outages across the area.
“The storm hit a densely populated area, which accounts for the destructive aftermath of this hurricane in terms of property losses.”
The Importance of Continued Funding
While publicity about Hurricane Sandy aftermath is losing its strength, the importance does not fade.
“Most people think about donations in the aftermath of disasters like Hurricane Sandy and donations are important in providing emergency relief and assistance,” Letendre said.
For long-term rebuilding efforts, a stable access to capital is a necessity. For example, if a local business loses its entire inventory in a flood, the owner can apply for a low-interest business loan to restock the shelves, repair the store and restart the business. Homeowners can act similarly when repairs are needed for their homes.
“What we saw after Sandy was that the network of CDFIs were incredibly flexible, responsible and able to get much needed capital to the communities that needed it,” Letendre said. “CDFIs were not designed to be disaster relief mechanisms, but we’re finding they work very well in that function.”
Whether the business loans went to CDFIs or to the businesses directly, the impact was, and remains, significant.