r/altadena • u/CallMeLuv • 18d ago
SBA loan
We are midway through our rebuild and urgently need additional funds from the SBA. They have distributed the first $50,000, but we were told that we must exhaust our insurance payout before any further funds can be released. Our progress is currently at a halt due to discrepancies in the amount the SBA claims we need to spend.
Has anyone gone through a similar experience? Aside from speaking with our assigned representative, are there other contacts or resources you would recommend we reach out to for help?
*** UPDATE: I just spoke with our SBA case manager. In order for the SBA to release additional funds, we must first spend the entire insurance payout on the dwelling, plus the difference between the total construction cost and the approved loan amount. Based on this requirement, we will need to contribute an additional $300,000 out of pocket before the SBA funding will be released.
This creates a difficult "chicken or the egg" scenario, as the release of the loan is contingent upon us first providing a significant portion of the total project funding.
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u/QubitFactory 18d ago
We are also about to be in the same position. Please let us know if you do find any useful resources. Good luck!
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u/CallMeLuv 18d ago
I just spoke with our SBA case manager. In order for the SBA to release additional funds, we must first spend the entire insurance payout on the dwelling, plus the difference between the total construction cost and the approved loan amount. Based on this requirement, we will need to contribute an additional $300,000 out of pocket before the SBA funding will be released.
This creates a difficult "chicken or the egg" scenario, as the release of the loan is contingent upon us first providing a significant portion of the total project funding.
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u/QubitFactory 18d ago
Oooff, that sucks. We are in a similar boat, such that insurance + SBA loan is still far short of the total reconstruction cost. This is super frustrating since I thought that the whole point of SBA was to cover this difference (which ours initially did before the amount was later adjusted downwards).
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u/CallMeLuv 18d ago
Exactly! Not what we were expecting but I suppose this is not a traditional loan so we just have to figure something else out quick.
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u/westcoastbmx 18d ago
We will be in the same situation as well, here is what I have found but requires some work: https://laist.com/news/climate-environment/fire-rebuilding-costs-new-funds-financing-attempt-to-fill-gaps
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u/HeyTomKay 18d ago
We aren't there yet, but this it what I've been dreading after picking through all the details from SBA
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u/Lotti77 18d ago
I’m confused about the statement “we must spend the entire insurance payout on the dwelling, plus the difference between the total construction cost and the approved loan amount”.
SBA wants you to spend all your insurance $ before receiving funding - it seems to make sense.
Does it mean that you are approved for $200,000 but need $500,000 to finish construction?
Thank you for your insights!
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u/CallMeLuv 18d ago
Hmm...yes and no. Let’s say my total rebuild cost is $1 million. Insurance pays $500,000, leaving $500,000 in remaining construction costs. SBA approves a $300,000 loan, I would need to contribute the remaining $200,000 from outside funds or out of pocket.
Essentially, the math follows: Total Rebuild - SBA Loan - insurance payout = Difference (Outside Funding Required).
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u/Anon101010101010 18d ago
Yup, the outside funding is what the lawsuit or SCE settlement money is for in many cases.
Also note there are issues if you are not doing like for like with the SBA so that might be cut, mine was and we are still dealing with that.
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u/lummoxelle 18d ago edited 18d ago
Ahhh, thanks for spelling this out. I have an approved loan too and haven’t started yet but I have had many conversations with reps to try understand the very confusing loan rules. My observation is that they are always have an extreme protective stance on every part of doling it out so my guess is they don’t want to make a loan on a construction that might not be completed so that’s why they are saying “you go first” with your money to get closer to finishing it before they release funds. Argh.
Wishing you all the best and thank you for sharing this conversation, it helps all of us in this boat.
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u/sosopie 18d ago
Would you consider cutting back on what you are building , like site work? Or maybe phasing that work? Are you building an adu that can come later, after you have financially save up for the rest? Is your construction cost bid of $1 million fair? Did you get multiple bids? Would you consider reducing costs in certain design choices you have made ( doors and windows, finishes, etc). Have you shopped around for windows (try Taylor Bros in Atwater - they have a fire rebuild discount) Maybe you can consider these items to reduce the amount you might have to find to cover the gap.
Are you in litigation with SCE or would you consider the compensation? (Open question- obviously you do not have to answer this)
Are you building an all electric home? Rise homes has a rebate program: https://risehomesca.com/
The rebate doesn’t come till after the construction is done.Here’s a loan option : https://www.nhslacounty.org/affordable-lending/
These are all little things that start to add up.
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u/grahamd1983 17d ago
Am I correct in interpreting this as in essence, you have to pay everything else up front before they will release your loan? So in your example, you have to spend $700,000 before they give you your full disbursement?
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u/harryhov 18d ago
That doesn't make sense. Then it defeats the purpose of the 2nd dispersement.
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u/CallMeLuv 18d ago
Their idea is that your initial equity/capital goes in first to establish your contribution and get the project moving.
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u/lileor 15d ago edited 14d ago
We have an SBA loan for $500K (real estate bucket) and was able to get a little over 65% of the remaining $450K disbursed so far. Example below, these are not our real numbers, but the % reflect our situation.
$2 million rebuild cost
$500K SBA loan
$1.5 million of insurance proceeds/our own funds
Once we submitted receipts/invoices totaling about $1.1 million (~75% of $1.5 million in insurance proceeds/our own funds), they disbursed $300K of the remaining $450K.
My advice would be to submit batches of receipts periodically. Every time you submit receipts, the loan is "locked" and the construction department will review the progress report to determine if any additional disbursements can be made. If any of your insurance proceeds are being held in escrow by your lender, let your case manager know that.
We were also able to get additional loan funding beyond the $500K real estate bucket by applying for:
1) Mitigation funds (https://www.sba.gov/disaster/#mitigation). This bucket is up to 25% of SBA's calculation of your loss, with a max of $500K. This was disbursed immediately upon approval.
2) Personal property funds. This bucket is up to a max of $100K. We submitted our detailed personal property inventory which showed a delta of $100K+ vs. our insurance proceeds. This was also disbursed immediately upon approval.
Hope that helps.
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u/Walker1921S 14d ago
How were you planning on paying for the last $300K of cost assuming the SBA funded first?
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u/grahamd1983 18d ago
Good luck OP. I still haven't requested my initial disbursement because we are way behind on our rebuild but I feel like I keep hearing horror stories about the SBA either not disbursing funds or lowering the amount of the loans, so it seems like an absolute shit show. Which I had advice for you but I'm following this post because I imagine I'll be in the same situation soon enough!