Federal disaster assistance loans often fall short for eastern Kentuckians
Federal disaster assistance can be offered to individuals through the Small Business Administration, but many eastern Kentuckians recovering from the July 2022 floods don’t qualify. And many who do are hesitant to take on the loan.
Reggie Ritchie sat parked in a neighbor’s driveway in the early morning of July 28, 2022, and watched as floodwater knocked his neighbor’s double wide into his home, off its foundation and into the street before him.
The home was a total loss.
The Federal Emergency Management Agency offered Ritchie $37,900, the maximum amount available to individuals for home repairs, but that wasn’t enough to rebuild and pay off Richtie’s mortgage. Ritchie, the director of radiology for two local hospitals in eastern Kentucky, needed more help, so FEMA told him to apply for a loan with the Small Business Administration.
As its name suggests, the SBA’s primary role is to support small businesses with loans, advice and assistance, but in the aftermath of a disaster, it represents an important pool of funding for both individuals and businesses. However, factors like credit, income, poor communication and even local culture mean the SBA’s low-interest loans often don’t work for people in economically distressed communities like eastern Kentucky, where last summer’s floods hit the hardest.
The SBA approved Ritchie for a loan that totalled about $206,000. But it came with terms and conditions that didn’t fit his needs. The loan offer required Ritchie rebuild on the same site that had just flooded or else already have a place picked out to relocate, for example. It also came with strict limitations on how much could be spent on every element of recovery. He also would have been expected to have flood insurance on the new home, an expense many living in the area say is cost prohibitive.
“The strings that are attached and all the things that go along with an SBA loan is quite extraordinary,” Ritchie said.
Ritchie decided not to take the loan, at least, not at this point in time. He’s hoping to sell his property through a government-funded home buyout program and build a new home nearby with help from the Appalachia Service Project.
Ritchie is in good company in turning down the loan. The SBA has offered more than 700 home and personal property loans to Eastern Kentuckians affected by last year’s floods, according to data obtained by the Kentucky Center for Investigative Reporting. As of May 27, the SBA had made payments on 319 – less than half – of those loans. Some eastern Kentuckians haven’t accepted the offers because they’re not interested in taking on debt. Some others, if they do have flood insurance, don’t want the complication of taking on loans they may not need.
All told, these business and individual assistance loans to survivors of the 2022 floods have so far put more than $15.5 million into eastern Kentucky. The aid is much needed, but it’s just over a quarter of the $58 million in SBA loans offered to assist in recovery.
Jack Camp is a public affairs specialist for the SBA. He said the SBA works alongside FEMA after a major disaster is declared by the president.
“Our job is to try to make someone whole as near as possible,” Camp said. “We cover up to 100% of their uninsured losses.”
For the disaster in eastern Kentucky, Camp said the SBA offered home and personal property loans with interest rates as low as 2.18%. If someone is not offered a loan through the SBA, because they don’t make enough money to qualify or have poor credit, for example, then they’re sent back to FEMA to appeal or to apply for other forms of aid.
In the context of the more than 16,000 FEMA applications made for this disaster, SBA loans were only offered to about 4% of the people who went to the government for resources.
Federal investigators with the Government Accountability Office have previously determined this system of sending disaster survivors from FEMA to the SBA is overly complicated and poorly communicated. Reporting by KyCIR found these issues to be playing out in eastern Kentucky as some people leave money on the table by failing to apply for loans or turning down loan offers. Others are frustrated by a slow response and appeals process.
Small businesses suffer
Traci King has owned and operated the Neon Vendors Mall in Fleming-Neon in Letcher County for 11 years. A road separates King’s business from the nearest creek, so she never worried about her shop flooding — until it did.
“I thought there was no way it would have gone up in that building,” King said.
When the July flood hit, King found the inside of her 24,000-square-foot building covered in mud with many of the products she and her vendors had for sale ruined. King had spent the day before the flood setting up displays with Christmas merchandise for shoppers looking to get an early start on decorations. But floodwaters pulled all that work apart, leaving muddy, upturned piles of soaps, shampoo, wreaths and floral arrangements in its wake.
“When I came down here, I just opened the doors and locked it back,” King said. “I just couldn't. There was just stuff…you had to dig a path to get in.”
King first sought help from FEMA to get her business back on track, but FEMA does not offer grants to businesses. SBA loans are the primary federal resource available for entrepreneurs whose businesses sustain damage in a disaster.
Data from the Small Business Administration show 49 loans were offered to businesses in eastern Kentucky after last summer’s floods, totalling more than $5.7 million.
Camp said interest rates were offered as low as 3.04% for 30-year loans. But as of late May, only 30 of these offers had been disbursed.
Maria Watson is an assistant professor at the University of Florida and a researcher at the university’s Shimberg Center for Housing Studies who examines how communities, including businesses, recover from disasters. Watson’s research on the aftermath of hurricanes and other disasters shows that businesses whose owners receive SBA loans are more likely to survive after a disaster.
“At least on the business side … it seems like the loans are really helpful if you’re in kind of a secure financial position, which disaster survivors might not necessarily be in,” Watson said.
She said some businesses also may apply for and receive Community Development Block Grants from the Department of Housing and Urban Development. Most will use other sources of funding to keep their doors open, such as business savings or revenue.
FEMA referred King to the SBA, but that agency denied her assistance as well.
“They said they declined me because of credit,” King said.
When King opened her business 11 years ago, she took out an SBA loan to help her get started and she said she’s been making payments on it ever since. King said she did have to ask for a pause on the payments in the initial aftermath of the flood.
Without this new SBA assistance, King hasn’t been able to reopen her business fully or even finish cleaning the building. Only six of 21 vendors had returned as of February. Mud residue from the flood persisted on some shelves, and the flood’s high water line, knee-high, still marked the walls.
If the SBA doesn’t offer a survivor a loan, they will refer the individual back to FEMA so that the agency can consider their application for other categories of aid, such as assistance to put toward transportation or replacing personal property. People need to apply for an SBA loan to be considered for that additional help. Deciding to forgo an SBA loan can actually disqualify someone from accepting other forms of FEMA aid.
“It’s very important when someone is referred to the SBA, especially a homeowner or renter, that they follow through on the loan application so that they get access to all the public assistance that’s available for them,” Camp said.
The Government Accountability Office, an independent investigative agency within Congress, has acknowledged problems with the way FEMA and the SBA coordinate to provide disaster recovery resources. In a September 2020 report, the GAO found that the agencies often struggle to communicate why an individual needs to apply for an SBA loan in the first place.
Especially if someone isn’t a business owner, the logic of applying to the Small Business Administration for assistance can be confusing.
Among the GAO’s 14 recommendations was specific guidance that FEMA provide clearer explanations to survivors explaining why they need to apply for an SBA loan and that FEMA offer more consistent information about the requirements for these loans.
The first of those recommendations was determined to have been implemented this month. The second remains open, according to the report’s webpage.
About a month before the July floods, the GAO released another list of priority recommendations for the SBA. These are recommendations the GAO thinks are especially important because implementation could save money, eliminate waste, fraud and abuse or improve services.
Four of those recommendations focus on the SBA’s disaster recovery programs. They include better communication with survivors, improving coordination with other disaster recovery agencies, and identifying barriers that prevent people from accessing SBA resources.
The SBA agreed with this set of priority recommendations, and is making progress on them, according to the full report provided online.
In the meantime, eastern Kentuckians also see issues based on their experience.
Cathy Conley is an English teacher at Knott County Central High School. Conley first took out an SBA loan for $25,000 in 2021 when March floods damaged her home. She repaired the home only to see it flood once again in July last year.
Instead of taking out a new loan, Conley was able to extend the loan from 2021 to increase the amount borrowed. Conley said the process to secure an SBA loan looks and sounds easy, but gets complicated by strict paperwork and administrative requirements. Paperwork can be challenging for the average person, but it’s especially difficult in the aftermath of a disaster when someone has lost their home or transportation.
Conley said it took from March 2021 to March 2022 to process her first loan from the flooding in 2021 and from August 2022 to April 2023 to get an extension after the July flood.
“It was grueling,” Conley said.
But Conley said she had an easier time navigating the process than some of her neighbors.
In the aftermath of the flood, a disaster recovery center was set up in the Knott County Sportsplex with FEMA representatives. Conley got help there, but realized that while she was understanding what was going on, the people around her didn’t always.
The Knott County community consists largely of older people, Conley said, and they often have a harder time understanding some of the technical documents they receive in the process of trying to get disaster assistance.
“I feel like that has been a huge disadvantage for the whole process,” Conley said.
In the long wake of the most devastating floods in recent memory, it’s a disadvantage on top of disadvantages that already plague Eastern Kentucky. In the region that flooded, nearly a quarter of people live in poverty and the median income is just over $34,000.
Whitney Bailey is the disaster resource attorney for AppalReD Legal Aid, which provides free legal assistance to people in eastern and south central Kentucky.
Since most of AppalReD’s clients are low income, Bailey said the majority don’t meet the income requirements for an SBA loan in the first place. Those that do qualify are wary of taking on debt, Bailey said.
“Most of them have been out of debt or don't trust credit card companies or just don't want a loan in general, so they don't want to accept that SBA loan,” Bailey said.
She also said some have inherited their homes and don’t owe a mortgage they’re worried about paying back.
But still, Bailey said she tells clients who do qualify for an SBA loan to take it, because not taking it may disqualify them from additional assistance and the other financial option will most likely be a personal or bank loan. If a disaster survivor doesn’t use financial assistance, they might leave the area or continue to live in whatever state the disaster left their homes and businesses.
In general, Bailey said people in eastern Kentucky still need important recovery resources, even when the process is overwhelming.
“A lot of people in Eastern Kentucky aren't good at asking for help, period,” Bailey said. “They have been told for so long that they are resilient and strong. So I think they feel like they have to live up to that expectation.”
The role of the SBA in disaster recovery is to help make a person whole by covering any uninsured losses. In an area like eastern Kentucky where many don’t have insurance and can’t qualify for a loan, it becomes a resource just out of reach for many and another frustrating recovery experience for others.
For those still struggling with the flood recovery process, there are resources available to help.
Long-Term Recovery Groups
All LTRGs active in the state are listed on the Kentucky Volunteer Organizations Active in Disaster website. In eastern Kentucky, there are six active LTRGs.
For assistance with legal issues, AppalReD Legal Aid has offices in Barbourville, Hazard, Pikeville, Prestonsburg, Richmond and Somerset. Their free civil legal help is available to eligible low-income individuals.
For assistance with mental health, Kentucky River Community Care offers crisis and substance abuse services, in addition to other programs for children and adults, people with developmental and intellectual disabilities, housing and healthcare. Additionally, Project Recovery provides community-based outreach and psycho-educational services.