# DisasterPhysical Disaster and Economic Injury Loans > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A94-5433 ## Record - **Collection:** Federal Register - **Document type:** Uncategorized Document - **Published:** March 9, 1994 ## Text SMALL BUSINESS ADMINISTRATION 13 CFR Part 123 Disaster--Physical Disaster and Economic Injury Loans AGENCY: Small Business Administration. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: The Small Business Administration (SBA) is revising on an immediate basis its present prohibition on making economic injury disaster loans available to small business concerns engaged in investing in real or personal property (see 13 CFR 123.41(b)(2). This regulation would provide a limited exception to that prohibition which would permit economic injury assistance to be made available to concerns investing in either commercial or residential real property which is rented to a third party or intended to be rented to a third party. This revision is being undertaken on an emergency basis and is therefore published as a final rule. DATES: This rule is effective March 9, 1994. ADDRESSES: Comments should be submitted to Bernard Kulik, Assistant Administrator for Disaster Assistance, U.S. Small Business Administration, 409 Third Street SW., 8th Floor, Washington, DC 20416. FOR FURTHER INFORMATION CONTACT: Michael E. Deegan, Office of Disaster Assistance, (202) 205-6734. SUPPLEMENTARY INFORMATION: Pursuant to section 7(b)(2) of the Small Business Act, 15 U.S.C. 636(b)(2), SBA is authorized to make disaster loans available as it may determine to be necessary or appropriate to any small business concern located in an area affected by a disaster, if SBA determines that the concern has suffered a substantial economic injury as a result of such disaster. In implementing this statutory mandate, SBA has promulgated regulations (see 13 CFR 123.40 et seq.), among which is 13 CFR 123.41(b)(2) which enumerates a number of types of business concerns which are ineligible for economic injury assistance. Among such concerns are those which invest in commercial or residential real property that is to be held for the purpose of obtaining rental income. These types of businesses have historically been ruled ineligible for SBA's business loan and economic injury disaster loan assistance because they have been viewed, as a matter of policy, to be passive investment businesses not involved in the operation of a going commercial business activity. SBA has determined that this restriction on the eligibility of businesses engaged in the rental of real property is no longer warranted for economic injury disaster assistance because of the unique practical implications on real estate rental that flow from disaster situations, notwithstanding the passive nature of the business activity of such concerns. In this regard, disasters commonly damage a significant share of the rental real properties in a disaster area, causing shortages of available residential and commercial rental space. At the same time, disaster victims (including homeowners, renters and businesses) displaced from their own damaged properties are forced to hastily seek rental of suitable alternatives. They enter a market with a suddenly constricted supply of rental properties due to the disaster. The combination of these factors often leads owners of vacant, undamaged rental property to increase rents, which in turn forces residential and commercial renters to pay rental rates above what their budgets can reasonably afford. Under SBA's physical disaster assistance program, the owners of disaster damaged rental real property can borrow the amount of their uninsured losses from SBA to help fund repairs of physical damages. However, until the repairs are completed and the tenants return, the landlords experience a period of negative cash flow while mortgage payments and operating expenses continue without rental receipts. Many landlords, especially the small ones, cannot maintain solvency through such a period. Notwithstanding these circumstances, unlike most other businesses, such landlords are not presently eligible for SBA economic injury disaster loans, which are intended by law to help small businesses meet ordinary and necessary operating expenses and pay fixed debts until resumption of normal operations after a disaster. Because the inability of small landlords to obtain economic injury assistance from SBA poses a direct obstacle to their ability to return their disaster damaged rental units to the residential and commercial market, it also compounds the difficulties faced by renters in the aftermath of disasters. This practical reality along with the acute needs within a disaster area for an adequate supply of affordable residential and commercial rental property justify extending economic injury eligibility to rental real property owners. This amendment provides a limited exception to the present rule which prohibits economic injury disaster assistance to all concerns investing in real property. It does not affect the provisions of SBA's present regulations (13 CFR 120.102-8) which prohibit eligibility for business loan assistance for such businesses and, it does not permit economic injury disaster assistance for businesses which merely invest in real property for sale and investment. Only concerns which invest in real property for rental purposes will be eligible for SBA economic injury disaster assistance under this revision. Those who cannot demonstrate that their property was rented or intended to be rented at the time of the occurrence of the disaster will continue to be ineligible for the assistance. In reviewing applications for economic injury assistance for rental property owners, the remaining SBA eligibility and credit standards that currently apply to all other small businesses eligible for an economic injury disaster loan will be used. SBA is establishing this limited exception effective upon publication pursuant to 13 CFR 123.1(b) which authorizes emergency changes in the regulations governing its disaster assistance program, and 5 U.S.C. 553(b)(B) which permits publication of regulations in final form without notice of comment when an agency finds that good cause exists for publication in final form on an emergency basis, and that notice and comment is impracticable, unnecessary or contrary to the public interest. In this regard, the public interest in seeing to it that the new limitations are effective as to the recent California earthquake disaster makes the utilization of notice and comment rulemaking impracticable. Compliance With Executive Orders 12866, 12612, and 12778; Regulatory Flexibility Act, 5 U.S.C. 601, et seq.; and the Paperwork Reduction Act, 44 U.S.C. ch. 35 For purposes of Executive Order 12866, SBA certifies that this rule will not have an annual economic effect in excess of $100 million, result in a major increase in costs for individuals or governments, or have a significant adverse effect on competition and, therefore, would not constitute a major or significant rule. SBA has made this determination based upon the fact that even though this rule would potentially increase the universe of eligible applicants for economic injury disaster assistance, it would not, in and of itself, increase the gross amount of disaster assistance available to those who are eligible. Individual applicants will still be governed by all other eligibility requirements for SBA economic injury disaster assistance and will remain eligible for assistance to the extent of verifiable loss as present regulations provide. For purposes of Executive Order 12612, SBA certifies that this rule will not have federalism implications warranting the preparation of a Federalism assessment. For purposes of Executive Order 12778, SBA certifies that this rule is drafted, to the extent practicable, in accordance with the standards set forth in section 2 of that Order. For purposes of the Regulatory Flexibility Act, SBA certifies that this rule will not have a significant economic effect on a substantial number of small entities for the same reason that it is not a major or significant rule. For purposes of the Paperwork Reduction Act, SBA certifies that this rule will not impose a new recordkeeping or reporting requirement. List of Subjects in 13 CFR Part 123 Disaster, Physical disaster and economic injury loans. For the reasons set out above, pursuant to sections 5(b)(6) and 7(b)(2) of the Small Business Act, title 13, part 123 of the Code of Federal Regulations, is amended to read as follows: 1. The authority citation for part 123 continues to read as follows: Authority: Sec. 5(b)(6), 7(b), (c), (f) of the Small Business Act, 15 U.S.C. 634(b)(6), 636 (b), (c,) (f); Pub. L. 102-395, 106 Stat. 1828, 1864; and Pub. L. 103-75, 107 Stat. 739. 2. Section 123.41(b)(2)(ix) is revised to read as follows: Sec. 123.41 General provisions. * * * * * (b) * * * (2) * * * (ix) concerns investing in property--see Sec. 120.102-8; Provided however, that for any disaster occurring on or after January 1, 1994, concerns investing in real property that was being held for rental at the time of the occurrence of the disaster are eligible to apply for these loans. * * * * * Dated: February 22, 1994. Erskine B. Bowles, Administrator. [FR Doc. 94-5433 Filed 3-8-94; 8:45 am] BILLING CODE 8025-01-M --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A94-5433. Public record. Not legal advice.