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By
James T. Hendrick
Thelen Reid Brown Raysman & Steiner LLP
INTRODUCTION
This
report provides information about government and private
sources of financial assistance for businesses that have
sustained uninsured or underinsured losses arising from
the September 11, 2001 attacks on the World Trade Center
and the Pentagon. However, legislation to assist the airline
industry and families of those killed in the attack is outside
the scope of this report.
FEDERAL AID
The
federal government, through the Small Business Administration
and the Federal Emergency Management Agency, provides loans
and, less commonly, outright grants when disaster areas
are declared. Disaster declarations are official notices
recognizing specific geographic areas qualified for federal
aid. These disaster declarations are published in the Federal
Register and can be found at www.gpoaccess.gov
or obtained through the FEMA hotline at 800-462-9029. The
States of New York, New Jersey and Virginia have been declared
federal disaster areas. Federal Register, Vol, 66, No. 189,
September 28, 2001, and No. 195, October 9, 2001.
The
SBA, whose Web site is at www.sbaonline.sba.gov,
assists businesses through its Disaster Loan Program. FEMA,
whose Web site is at www.fema.gov,
provides disaster relief through its Individual and Family
Grant Program. Under either program, a threshold requirement
is that the claimant has suffered an uninsured disaster-related
loss.
SBA's
Disaster Loans: SBA provides low-interest, unsecured,
long-term disaster loans for residences and businesses.
Small Business Act, 15 USC §636 (b), (c) and (f). Loan
amounts, types of loans, interest rates and payback periods
depend on the financial condition of the applicant. SBA
loans normally have an interest rate below 5 percent and
a five-year term.
The
SBA offers businesses two types of disaster loans: the Business
Physical Disaster Loan and the Economic Injury Disaster
Loan. The former are loans to repair or replace damaged
property owned by the business, including real estate, machinery,
equipment, inventory and supplies. They also may be used
to refinance mortgages on damaged property. A business entity
of any size or type -- for-profit, non-profit, sole proprietorship,
partnership, corporation, LLC -- can apply for a physical
disaster loan. In the case of damaged commercial real estate,
either the owner or a tenant may apply, depending on the
terms of the lease. More information is available at www.sba.gov/services/disasterassistance/index.html
or www.fema.gov.
An
economic injury disaster loan is available to small businesses
or small agricultural or producer cooperatives that, because
of disaster loss, cannot obtain credit through commercial
sources. A small business is so classified by comparing
its recorded sales or number of employees against predetermined
standards for its industrial field. According to the Code
of Federal Regulations, the threshold economic injury for
a loan is that a business is unable to meet its obligations
as they mature or to pay its ordinary and necessary operating
expenses. Loss of anticipated profits or a drop in sales
is not considered substantial economic injury for this purpose.
A loan may be used for working capital to assist the applicant
resume normal operations. The loan typically carries an
interest rate of 4 percent. More information is available
at www.sbaonline.sba.gov
and at www.drj.com.
An
applicant can obtain both types of loans, but the combined
loan amount cannot exceed $1.5 million. If, however, a business
is a major source of employment within a disaster area,
the SBA may waive the $1.5 million limitation.
SBA
loan applications can be obtained by calling 800-462-9029.
A representative will ask for the following: Social Security
number, phone number, address and insurance information.
The representative then will activate the application by
assigning a registration number and mailing the written
portion of the application to the claimant.
FEMA's
Individual and Family Grant: FEMA Individual and Family
Grants of up to $2,500 are designed for claimants who have
exhausted all other means of assistance for uninsured disaster-related
expenses. FEMA grants help individuals and families pay
for the repair or replacement of disaster-related, uninsured,
damaged residential or personal property as well as related
medical, dental, funeral and transportation costs. As a
general rule, these grants are not intended for business/self-employment
expenses, but they can be an important source of relief
for a company's employees. Moreover, self-employed individuals
who work from home may qualify for FEMA grants.
To
qualify for the grant, an applicant first must have applied
for and been denied an SBA disaster loan. The application
for FEMA assistance can be completed over the phone by calling
800-462-9029. The following will be requested: Social Security
number, phone number, address and insurance information.
The representative will assign a registration number and
forward the application for processing. A hotline has been
established for claimants in New York and surrounding areas
at 800-456-8369 (800-I-LOVE-NY). For more information, visit
www.fema.gov.
Internal
Revenue Service: A form of non-cash relief may be available
through tax deductions for disaster-related losses. Deductible
losses may include damage to property and other disaster-related
losses. Loss inventories compiled by FEMA inspectors may
be attached to the tax return.
Businesses
interested in tax relief should consult IRS Publication
547, "Casualties, Disasters and Thefts (Business and
Nonbusinesses)," and the Instructions to IRS Form 4684,
"Casualties and Thefts," both of which are available
at www.irs.gov. Taxpayer
disaster victims may call the IRS at 866-562-5227 (IRS disaster
hotline) or 800-829-1040 (general information) and should
consult their regular tax advisers.
STATE AND LOCAL PROGRAMS
WTC
Disaster Recovery Loan: The "WTC Disaster Recovery
Loan Program," recently established by the New York
Mayor's Office of Emergency Management in conjunction with
private banks, can assist New York businesses through bridge
loans. Under the program, applicants may receive up to $100,000
within three days of application while their applications
for SBA disaster loans are being reviewed. The bridge loans
may be used for working capital to purchase machinery and
equipment or to repair facilities. So far, the following
banks have announced participation in the program: Banco
Popular, Citibank NA, Fleet National Bank, JP Morgan Chase,
Bank of New York and the HSBC USA. For more information,
visit www.nycif.org.
New
York Department of Labor: The New York Department of
Labor offers assistance in temporary job creation for clean-up
and recovery. The department also has established a "Layoff
Aversion Grant" program and helps administer a "Shared
Work Program." The Layoff Aversion Grant was created
to assist businesses affected by the WTC disaster. Grant
proceeds can be used for training and upgrading skills of
existing workers. The Shared Work Program ("SWP")
provides another alternative to layoffs. It allows employers
to reduce hours and/or wages and supplement those reductions
with unemployment insurance benefits. Employers that have
had five or more full-time employees on payroll for a year
can apply for SWP assistance if they reduce current employee
hours and/or wages by 20 to 60 percent. For more information
and applications, contact the department at 212-621-9343.
New
York Insurance Department: The New York Insurance Department
has urged insurers to expedite the payment of business and
other claims resulting from the recent terrorism. See, Circular
26, September 12, 2001. The insurance superintendent has
publicly stated that in the department's oversight of the
insurance industry, it can invoke extraordinary regulatory
powers. See, Circular 28, September 24, 2001. For example,
the superintendent has the authority to limit insurers'
rights to cancel or non-renew insurance policies. See, testimony
of the superintendent before the House Committee on Financial
Assistance, September 26, 2001.
PRIVATE SOURCES
Emergency
Loan Fund: Private assistance for businesses usually
is offered in the form of loans. For example, Fleet Bank
created a $150 million Emergency Loan Fund for New York
City businesses impacted by September 11. Fleet will offer
qualified businesses the opportunity to borrow from $10,000
to $5 million at below-prime borrowing rates. HSBC USA also
is offering lower loan interest rates than usual, and it
has instituted a skip-payment program that frees the most
severely damaged companies from making payments on their
loans for six months.
Insurance
Disaster Coalition: The New York Insurance Disaster
Coalition, a broad-based group of insurance companies and
related service providers, has announced that it is working
with the New York Insurance Department to make claims processing
as efficient as possible. A number of insurance information
centers have been established near the disaster area.
ADDITIONAL RESOURCES
Updates
on private sector resources for businesses in New York City
are available from the New York City Investment Fund at
www.nycif.org.
Other
New York state agencies provide information and assistance
at:
Emergency
Management Agency: 518-457-9900.
Department
of Labor: 800-HIRE-992.
Insurance
Department: 877-467-3863 or 800-339-1759.
Business
Assistance: 718-630-2457.
Business
Hotline: 718-403-2220.
Economic
Development Corporation Hotline: 718-630-2457 or 718-492-2458.
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For more information about the issues covered in this report, please contact James T. Hendrick in our San Francisco office at 415-369-7278 or at jthendrick@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
©2001 Thelen Reid Brown Raysman & Steiner LLP
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