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Wednesday, August 22, 2012

The SBA Disaster Loan Program: Overview and Possible Issues for Congress

Bruce R. Lindsay
Analyst in American National Government

Through its Office of Disaster Assistance (ODA), the Small Business Administration (SBA) has been a major source of assistance for the restoration of commerce and households in areas stricken by natural and human-caused disasters since the agency’s creation in 1953. SBA offers low-interest, long-term loans for physical and economic damages to businesses to help repair, rebuild, and recover from economic losses after a declared disaster. However, the majority of the agency’s approved disaster loans (approximately 80%) are made to individuals and households (renters and property owners) to help repair and replace homes and personal property.

The three main types of loans for disaster-related losses include (1) Home and Personal Property Loans, (2) Business Physical Disaster Loans, and (3) Economic Injury Disaster Loans (EIDL). Home Disaster Loans are used to repair or replace disaster-damaged primary residences. Personal Property Loans are used to replace personal items such as furniture and clothing. SBA regulations limit Home Physical Disaster Loans to $200,000 and Personal Property Loans to $40,000. Business Physical Disaster Loans help businesses of all sizes and nonprofit organizations repair or replace disaster-damaged property, including inventory and supplies. EIDLs provide financial assistance to businesses located in a disaster area that have suffered economic injury as a result of a declared disaster (regardless if there has been physical damage to the business). EIDLs are used to meet financial obligations it could have met if the disaster had not occurred. Both Business Physical Disaster Loans and EIDLs are limited by law to $2 million per applicant. Business Physical Disaster Loans and EIDLs also provide assistance to small businesses, small agricultural cooperatives (but not enterprises), and certain private, nonprofit organizations that have suffered substantial economic injury resulting from a physical disaster or an agricultural production disaster. Since 1953, SBA has approved roughly 1.9 million disaster loans for a total of more than $47 billion (nominal dollars).

Congressional interest in the Disaster Loan Program has increased in recent years primarily because of concerns about the program’s performance in responding to the 2005 and 2008 hurricane disasters. Supporters of the Disaster Loan Program argue that it is an important form of assistance to help victims recover from disasters. Critics argue that the responsibility for disaster recovery should be borne by homeowners through the purchase of private insurance. Supporters reply that by covering individuals and households unable to afford private insurance, the program fills a need not met by traditional market mechanisms.

This report describes the SBA Disaster Loan Program, including the types of loans available to individuals, households, businesses, and nonprofit organizations and highlights issues that may be of potential congressional concern: (1) the pace of implementation of the Small Business Disaster Response and Loan Improvement Act of 2008 (P.L. 110-246), (2) SBA’s loan processing procedures, (3) the funding of the Disaster Loan Program, (4) the potential need for loan forgiveness and waivers, (5) decline rates for SBA disaster loans, (6) the use of disaster loans to replace allegedly toxic drywall, (7) the transfer of the Disaster Loan Program to FEMA, (8) the perceived increase in federal spending for disasters, and (9) interest rates for SBA disaster loans.

Date of Report: August 8, 2012
Number of Pages: 28
Order Number: R41309
Price: $29.95

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