September 12, 2017
By Richard Jeffery
Guest Editor, SBA Hot Topic Tuesday
SBA Hot Topic Tuesday — IDAP — The Unknown SBA Loan Disaster Program
SBA’s Immediate Disaster Assistance Program (IDAP) is a quick way to get funds to a business that has suffered loss due to a disaster. Have you ever heard of it? If not, then you’re not alone. The program started circa 2010, but few SBA lenders know about IDAP. That’s not because disasters are scarce. According to FEMA, In 2016, there were 102 declared disasters; and there already are 85 declared disasters in 2017.
So what’s IDAP? A 7(a) lender or an SBLC applies with SBA to be an IDAP delegated lender. Once approved, the lender can make interim loans of up to $25,000 to small businesses who have applied for an SBA Disaster Loan to tide them over until they get the Disaster Loan. the maximum current interest rate is Prime + 1% and the lender can charge a $250 application fee, IDAP loans are 85% guaranteed, but the guaranty cannot be sold in the secondary market. Repayment comes from the proceeds of the SBA Disaster Loan. If SBA declines the Disaster Loan, then the IDAP loan amortizes for no less than 10 nor more than 25 years with any insurance proceeds or other recoveries the borrower receives applied to the IDAP loan.
The lender uses its conventional forms, determines creditworthiness and processes, closes, services and liquidates its loan. The usual SBA requirements for eligibility apply, including size standards and eligible/ineligible borrowers. That will require the specialized knowledge of a lender’s SBA department.
While SBA lenders are very community-oriented, even philanthropic, would an SBA department located in Tucson devote time and energy for IDAPs to businesses in Vicksburg, MS suffering loss due to a waterline rupture? And let’s be honest: given two deals — a $2.5 million hotel purchase or a $25,000 IDAP loan — on which will the SBA specialist focus?
Couple this with IDAP’s parameters (small dollars, small fee, no premium income and internal processing of eligibility) and we have discovered why lenders have never heard of IDAP.
How can the program be enhanced? One recommendation is to bring the funds closer to the home of the disaster by allowing Certified Development Companies and other types of locally-based SBA lenders, who know SBA’s eligibility requirements, to make IDAP loans. Many of these lenders are non-profits and may lack the capital to fund loans. A certain amount of disaster money could be allocated to the SBA IDAP program, allowing these lenders to borrow funds at below market rate and relend to local businesses. IDAP loans would still be guaranteed by SBA, and local lenders could be allowed to pool their amortizing loans for secondary market sale if the aggregate amount made economic sense. That would expedite relief for small businesses and repayment of principal to Treasury, and entice local lenders to participate in IDAP.
You may have other recommendations. Now, when we are being hit with major disasters such as Harvey and Irma and over 1 million acres burned in Montana, is a good time to think about enhancing a program that can respond to immediate needs.
Check out our free webinar, “Helping Your Borrowers Cope With Disaster.”
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