In this article:
California wildfire updates
It’s not news to anyone that California is vulnerable to wildfires. The state has experienced several large fires over the last decade causing billions in damage and resulting in multiple deaths. The extreme heat and dry terrain that is natural to the western part of the United States combined with drought conditions, climate change, and rapidly expanding urban activity make northern California and surrounding areas especially susceptible to these disasters (I attended grad school there, and it wasn’t uncommon to see smoke coming from the Verdugo or Santa Monica mountain ranges, and to drive home with a light coating of ash on my car). For homeowners, renters, and small business owners, a wildfire can mean property damage, business interruptions, challenging insurance claims, and dangerous air quality.
2021 proved to be a more challenging year than most, as California residents and small business owners, navigated the record-breaking wildfire year. One of the largest California wildfires, the Sugar Fire, began on July 2, 2021, and was considered active for 569 days. The fire had started when lightning struck the Plumas National Forest and forced more than 3,000 residents and businesses of all sizes to evacuate. The majority of the damage to structures occurred in the town of Doyle, CA, but most of Plumas and Lassen counties were affected by the fire.
While not a record-breaking year, the 2022 California wildfires also had a devastating effect on residents and businesses. During the year, 7,641 fires were reported which caused damage to almost 900 homes, buildings, and other structures. As alarming as those figures are, 2022 wildfire statistics remain below the five-year average, which is calculated by the total acres affected. Wildfire season is typically considered July through November in California and 2022 was no different. Governor Gavin Newsom, along with the state’s fire department, announced the end of the 2022 wildfire season in a press release on November 17, 2022.
The Governor and local news outlets highlighted the reduction in fire damage throughout the year but warned communities to stay alert every month. Credit was given to CAL FIRE for completing fire prevention and mitigation projects in an area spreading farther than 20,000 acres, but noted that cooperative weather also contributed to the decrease in damage in 2022 compared to previous years. The focus of the organization is on regions most vulnerable to natural disasters including Sonoma, Butte, Shasta, Garfield, and contiguous counties.
Wildfire reduction efforts
While it is still early in 2023, experts are optimistic about the 2023 California Wildfire season. That optimism comes mostly as a result of several federal programs that provide grants and other financial assistance to U.S. states to prepare for and prevent wildfire emergencies. One of the agencies that make a positive impact on the reduction efforts is the U.S. Forest Service, a federal agency under the United States Department of Agriculture (USDA), that manages 193 million acres of land.
The Forest Service works with state and county agencies to provide personnel training, education, equipment, and hazard mitigation services. The programs implemented by the Forest Service and local agencies are generally funded by federal grants. The most common funding program comes from Fire Management Assistance Grants (FMAGs) and becomes accessible when there is a major disaster declaration in a certain state or county. The Federal Emergency Management Agency (FEMA) also works with all states, including California, to provide training for community response to fires and other natural disasters as well as several grant programs and financial assistance to departments, homeowners, renters, and small business owners affected by a disaster.
Resources for small businesses impacted by fire
If you are a small business owner in California, you may have already experienced a loss as a result of a natural disaster and are wondering what resources are available to you. If you are fortunate enough to have not experienced business interruptions or property damage due to a disaster, it is still important to learn about the disaster relief resources available during and after a wildfire. There are several agencies that work to aid business owners, as well as many local resources.
In January 2023 the federal government allocated $930 million in federal funding to go to supporting U.S. regions that have been impacted by recent wildfires. The areas selected for the funding included California, Oregon, and Arizona and eight additional states. The money to help residents and entrepreneurs recover from wildfire damage was made possible by the Inflation Reduction Act of 2022 and President Joe Biden’s Bipartisan Infrastructure Law.
California residents and business owners can turn to CAL FIRE for assistance with fire safety education, as well as information about protecting your business during a fire, wind storm, or flooding. Cal fire also recommends that business owners impacted by wildfire evacuations or damage create a business emergency plan to help minimize the negative effects of the disaster.
The California Business Investment Services Unit, or CalBIS, works with employers, commercial real estate professionals, and small business owners that are considering California as a location for a new business or an expansion. CalBIS helps entrepreneurs with site planning as well as provide information on incentives, resources, and services including information about tax credits available to California entrepreneurs.
Small Business Development Centers (SBDC) are physical locations set up throughout California to help small businesses impacted by wildfires access free or low-cost business assistance including start-up assistance, disaster recovery, growth strategy consultations, training, mitigation, and business plan development.
The CA Employment Development Department (EDD) provides assistance to small business owners and individuals following any disaster declaration in California. The services provided include assistance with unemployment claims and extensions for employers to file and pay payroll taxes. To get assistance, small business owners can visit an EDD Local Assistance Center, which are located near disaster zones and in well-populated cities, like Sacramento. The centers have translators available to help with any language barriers or assist entrepreneurs that may be hard of hearing.
Small business loans for California wildfires
The U.S. small business administration (SBA) is a government agency that helps small business owners get access to federal disaster loans once a disaster has occurred. The SBA provides financial assistance, general support, and low-interest disaster loans. SBA loans offer low interest rates, low down payments, and long repayment terms. Once a wildfire has hit and a disaster is declared by FEMA or the governing body, the SBA accepts applications to aid in the disaster recovery process for up to two years, depending on the deadlines explained in the declaration. To confirm if your area has been declared a disaster zone, check the SBA declaration status here.
- Economic Injury Disaster Loans (EIDLs) – EIDL loans are funding programs for small businesses, agricultural cooperatives, and most private for-profit or private nonprofit organizations that have suffered economic losses as a result of a declared disaster. EIDL loan amounts of up to $2 million are available to eligible businesses in affected areas of California and approved based on the amount of documented economic injury to the business.
- Physical Disaster Loans – Physical disaster loans cover the costs of repairing and replacing uninsured or underinsured property that was damaged by wildfires or other natural disaster. The proceeds can be used to replace or repair commercial real estate, equipment, and inventory. These loans are issued for up to $2 million with repayment terms up to 30 years. Unlike other types of business financing, the SBA may increase physical disaster loan amounts by up to 20% to protect the borrowers’ property against future physical damage.
How to apply for a disaster loan
Access to financial resources is often a primary concern for entrepreneurs in the aftermath of a disaster, so understanding the loan process can help entrepreneurs get the funds they need to start the recovery process. SBA disaster loans work differently than other SBA loans like the SBA 7(a) loan or SBA Microloans. To apply for those loan programs, potential borrowers can work directly with an SBA-approved lender, like Biz2Credit. However, for small business owners interested in applying for a disaster loan, applications are completed directly with the SBA. Follow these steps to apply for an SBA disaster loan:
SBA disaster loan applications are reviewed only after a borrower has registered with FEMA. To obtain a registration number, call FEMA at 1-800-621-3362 (TTY: 1-800-462-7585) or visit DisasterAssistance.gov. To speed up processing, be sure you have your FEMA registration number accessible when you begin the loan application process.
SBA disaster loan applications can be completed via online application at https://disasterloanassistance.sba.gov, at an SBA disaster center, or by calling the SBA at 800-659-2955 to request an application by mail. To complete an online SBA disaster loan application, you will need the following information:
- Name, address, and phone number of applicant
- FEMA registration number
- Social Security Number (SSN) of applicant
- Employer Identification Number (EIN) of affected business
- Deed or lease on business
- List of business assets
- Business insurance information
- Financial statements for corporations, sole proprietorships, and partnerships
Before your loan application is completed, you’ll need to be sure you’ve included the proper documentation. In addition to the SBA Form 5, or business loan application, you’ll need:
- A recent Federal Income Tax Return for the business
- IRS Form 4506-T for all persons that have 20% or more ownership in the business
- SBA Form 413 – personal financial statement for all owners
- SBA Form 2022 – schedule of liabilities
Once you’ve completed the SBA disaster loan application, the SBA will take action to approve or deny funding. During the first step in the review process, the SBA will review the creditworthiness of the applicant. If the credit history is acceptable, an SBA inspector will be sent out to make assessments on the total cost of the disaster damage. From there, a loan officer will determine if you are eligible and notify you if there is further information needed. Most SBA loan applicants receive a decision within 2-3 weeks. You can check your loan status on the SBA website by logging into your account.
Other small business loan options
While disaster loans are a great financial tool for small businesses impacted by wildfires, they are not the only type of business financing option. If cash flow is a concern or disaster loan funding does not cover repairs or operating expenses during periods of closed operations, consider the following lending options:
Business lines of credit
A business line of credit can provide funding in as little as 1 -3 business days for approved borrowers and is a good fit for entrepreneurs with less than perfect credit scores. A line of credit is a type of revolving line of credit where the borrower is approved for a maximum loan amount and then can draw on the credit line whenever they need funds. Monthly payments are calculated on the amount of funds withdrawn, not the total credit limit.
A term loan is a type of small business financing where the borrower receives a lump sum of cash upfront and then makes monthly payments for a predetermined amount of time. Interest rates for term loans are either variable, which change according to the market rate or fixed, which remain the same over the life of the loan. Funds from approved term loans can be used to make repairs to business or personal property, renovations, or to supplement working capital and cover ordinary operating expenses.
California has been at the center of some of the country’s most devastating wildfires because of the extreme heat and dry terrain. Wildfire reduction efforts are supported with Federal funding provided through the Inflation Reduction Act of 2022 and the Bipartisan Infrastructure Law. Small business owners that have suffered economic or physical damage because of a declared disaster can apply for EIDL or Physical Disaster Loans through the SBA once they have registered with FEMA. Other financing options for California entrepreneurs include term loans and business lines of credit. If you are interested in a disaster loan or other financing option, reach out to Biz2Credit today. Ask them how they can help your business recover with a fast funding loan, like they were able to arrange for the owner of Scotch Hills Pharmacy.