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

Bruce R. Lindsay
Analyst in Emergency Management Policy
June 29, 2010
Congressional Research Service
7-5700
www.crs.gov
R41309
CRS Report for Congress
P
repared for Members and Committees of Congress

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

Summary
Through its Disaster Loan Program, 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 direct loans to
businesses to help repair, rebuild, and recover from economic losses after a disaster, but
approximately 80% of the agency’s approved direct disaster loans are made to individuals and
households (renters and property owners) to help repair and replace homes and personal property.
The SBA Disaster Loan Program includes four categories of loans for disaster-related losses: (1)
Home Disaster Loans, (2) Business Disaster Loans, (3) Economic Injury Disaster Loans (EIDL),
and (4) Pre-Disaster Mitigation Loans. Home disaster loans are used by homeowners and renters
to repair or replace their disaster-damaged primary residences or personal property. SBA
regulations limit home loans to $200,000 for the repair or replacement of real estate and $40,000
for the repair or replacement personal property. Business disaster loans help businesses of all
sizes and nonprofit organizations repair or replace disaster-damaged property, including inventory
and supplies. Both Business Disaster Loans and EIDLs are limited by law to $2 million per
applicant. The two programs 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. It highlights eight issues 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) the roles and responsibilities of SBA in a potential National
Recovery Framework, (6) the use of disaster loans to replace allegedly toxic drywall, (7) the
transfer of the Disaster Loan Program to FEMA, and (8) the perceived increase in federal
spending for disasters. This report also discusses some of the reforms contained in Title VII of
H.R. 3854, the Small Business Financing and Investment Act of 2009, which passed the House on
October 29, 2009, and was referred to the Senate Committee on Small Business and
Entrepreneurship. H.R. 3854 contains provisions intended to address some of the programmatic
and policy issues associated with the SBA Disaster Loan Program.

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

Contents
Introduction ................................................................................................................................ 1
Types of SBA Disaster Loans ...................................................................................................... 2
SBA Disaster Loans Available to Homeowners and Renters................................................... 2
Personal Property Loans.................................................................................................. 2
Real Property Loans........................................................................................................ 2
SBA Disaster Loans Available to Businesses ......................................................................... 2
Business Physical Disaster Loans .................................................................................... 3
Economic Injury Disaster Loans...................................................................................... 3
Pre-Disaster Mitigation Loan Program ............................................................................ 3
Declared Disasters as Defined by SBA........................................................................................ 4
Types of Declarations............................................................................................................ 4
Frequency of Declarations..................................................................................................... 5
SBA Disaster Loan Program and Statistics .................................................................................. 6
Possible Issues for the 111th Congress.......................................................................................... 8
Compliance with the Small Business Disaster Response and Loan Improvements Act
of 2008 .............................................................................................................................. 9
Improved Time Frame for Loan Processing ......................................................................... 11
Disaster Recovery Framework ............................................................................................ 12
Consumer Product Safety.................................................................................................... 13
Credit Checks for SBA Disaster Loans ................................................................................ 14
Possible Reforms to the Disaster Loan Program .................................................................. 15
National SBA Data: 2000 to 2009 ................................................................................. 16
Private Insurance Disaster Losses: 2000 to 2009............................................................ 16
SBA Assistance Provided After the Gulf Coast Hurricanes of 2005 and 2008................. 17
Privatizing Disaster Loans................................................................................................... 19
Legislation Enacted in the 111th Congress.................................................................................. 20
Selected Examples of Pending Legislation and Resolutions ....................................................... 21
H.R. 3743 ........................................................................................................................... 21
H.R. 3854 ........................................................................................................................... 22
H.R. 4609 ........................................................................................................................... 23
Concluding Observations .......................................................................................................... 24
Acknowledgments .................................................................................................................... 30

Figures
Figure 1. Disaster and Emergency Declarations ........................................................................... 6
Figure 2. Nationwide SBA Disaster Loans for Homes and Businesses: FY2000 to
FY2009.................................................................................................................................... 8
Figure 3. National Comparison of SBA Loans to Private Insurance Disaster Losses:
FY2000 to FY2009 ................................................................................................................ 17
Figure 4. Disaster Loan Unpaid Principal Balance by Category ................................................. 19
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The SBA Disaster Loan Program: Overview and Possible Issues for Congress

Figure B-1. Number of Approved Applications for Home Disaster Loans, by Gulf Coast
State....................................................................................................................................... 26
Figure B-2. Number of Approved Applications for Business Disaster Loans,
by Gulf Coast State ................................................................................................................ 27
Figure B-3. Number of Approved Applications for Economic Injury Disaster Loans, by
Gulf Coast State..................................................................................................................... 27
Figure B-4. SBA Home Disaster Loans, by Gulf Coast State ..................................................... 28
Figure B-5. SBA Business Disaster Loans, by Gulf Coast State ................................................. 28
Figure B-6. SBA Economic Injury Disaster Loans, by Gulf Coast State ..................................... 29
Figure B-7. National Comparison of SBA Disaster Loans to Private Insurance Payouts:
2000 to 2009.......................................................................................................................... 29

Tables
Table 1. Disaster and Emergency Declarations ............................................................................ 6
Table 2. SBA Disaster Loan Approvals........................................................................................ 7
Table 3. SBA Disaster Loans by Type of Approved Application................................................. 18
Table 4. SBA Disaster Loans by Gulf Coast State ...................................................................... 18

Appendixes
Appendix A. Why Does SBA Instead of FEMA Issue Disaster Loans?....................................... 25
Appendix B. SBA Disaster Loan Approvals for Applicants in Gulf Coast States ........................ 26

Contacts
Author Contact Information ...................................................................................................... 30

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

Introduction
For more than 50 years, the Small Business Administration (SBA) Disaster Loan Program has
been a source of economic assistance to areas stricken by disasters. Authorized by the Small
Business Act,1 it is the only SBA program that provides direct loans to help businesses, nonprofit
organizations, homeowners, and renters repair or replace property damaged or destroyed in a
federally declared or certified disaster. The Disaster Loan Program is also designed to help small
agricultural cooperatives recover from economic injury resulting from a disaster. SBA disaster
loans include (1) Home Physical Disaster Loans, (2) Business Physical Disaster Loans, (3)
Economic Injury Disaster Loans (EIDL), and (4) Pre-Disaster Mitigation Loans.2
Since SBA’s inception in 1953, the agency has approved roughly 1.9 million applications for
disaster loans of all types, amounting to approximately $47 billion.3 Most direct disaster loans
(80%) are awarded to individuals and households rather than small businesses.4 The program
generally offers low-interest disaster loans at a fixed rate.5
This report provides an overview of the Disaster Loan Program, discusses how disaster
declarations trigger the SBA loan process, explains the different types of loans potentially
available to disaster victims, and discusses terms and restrictions related to each type of loan. The
report also explains the SBA disaster loan application process and provides national data on SBA
loans from 2000 to 2009, including data related to the Gulf Coast hurricanes since 2005.6
The report examines some of the more significant issues of potential interest in the 111th
Congress, such as SBA compliance with the Small Business Disaster Response and Loan
Improvement Act of 2008 (P.L. 110-246), the use of SBA disaster loans to replace allegedly toxic
drywall, and the SBA process for conducting credit checks.

1 P.L. 85-536, Section 7(b) 72 Stat. 387, as amended.
2 Declarations and certifications that can trigger SBA’s Disaster Loan Program assistance are discussed later in this
report under the heading “Types of Declarations.” SBA also offers Military Reservist Economic Injury Disaster Loans.
These loans are available when economic injury is incurred as a direct result of a business owner or an essential
employee being called to active duty. Generally, these loans are not associated with disasters. The policies and
regulations of the Disaster Loan Program are contained in Title 13, part 123, of the Code of Federal Regulations
(C.F.R.) and may be accessed at http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?sid=
a6359c887c16327c658d80667dd78f04&c=ecfr&tpl=/ecfrbrowse/Title13/13tab_02.tpl.
3 Testimony of Manuel Gonzalez, director, Houston District Office, Small Business Administration, in U.S. Congress,
Senate Committee on Small Business and Entrepreneurship, Disaster Recovery in Galveston, hearing, 111th Cong., 1st
sess., September 25, 2009.
4 Small Business Administration, Disaster Recovery: Introduction, Washington, DC, p. 2, Notes,
http://training.sba.gov:8000/response. See also Table 2 of this CRS report for annual data on Home Disaster Loans and
Business Disaster Loans.
5 The rationale for disbursing disaster loans through SBA rather than FEMA is explained in Appendix A of this report.
6 These are Hurricanes Katrina (August 29, 2005), Rita (September 24, 2005), Wilma (October 24, 2005), Gustav
(September 1, 2008), and Ike (September 13, 2008).
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Types of SBA Disaster Loans
The following section provides a description of the types of disaster loans available to
homeowners, renters, and businesses. Each description explains loan limits, eligible recipients
and loan activities, and loan maturities.
SBA Disaster Loans Available to Homeowners and Renters
As mentioned elsewhere in this report, 80% of SBA disaster assistance is made available to
individuals and households rather than businesses. SBA disaster assistance is provided in the form
of loans, not grants, and therefore must be repaid to the federal government. Homeowners,
renters, and personal property owners located in a declared disaster area (and in contiguous
counties) may apply to SBA for loans to help recover losses from the disaster. SBA’s Home
Disaster Loan Program falls into two categories: personal property loans and real property loans.7
These loans cover only uninsured or underinsured property and primary residences. Loan
maturities may be up to 30 years.
Personal Property Loans
A personal property loan provides a creditworthy homeowner or renter with up to $40,000 to
repair or replace personal property items such as furniture, clothing, or automobiles damaged or
lost in a disaster.8 These loans cover only uninsured or underinsured property and primary
residences and cannot be used to replace extraordinarily expensive or irreplaceable items such as
antiques, recreational vehicles, or furs.
Real Property Loans
A creditworthy homeowner may apply for a “real property loan” of up to $200,000 to repair or
restore the homeowner’s primary residence to its pre-disaster condition. The loans may not be
used to upgrade homes or build additions, unless upgrades or changes are required by city or
county building codes. A real property loan may be increased by 20% for repairs to protect the
damaged property from a similar disaster in the future.9
SBA Disaster Loans Available to Businesses
As with Home Disaster Loans, SBA disaster assistance for businesses is in the form of loans
rather than grants and must be repaid. Three types of SBA disaster loans are available to
businesses: Business Physical Disaster Loans, EIDLs, and Pre-Disaster Mitigation Loans. The
following sections briefly describe each of type of loan. The maximum loan maturity for a
Business Disaster Loan is 30 years.

7 13 C.F.R. § 123.
8 13 C.F.R. § 123.105(a)(1).
9 13 C.F.R. § 123.105(a)(2).
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Business Physical Disaster Loans
Any business, regardless of size, located in a declared disaster area may be eligible for a Physical
Disaster Loan through the SBA Disaster Loan Program. Physical Disaster Loans are made
available to repair or replace damaged physical property. The maximum loan amount is $2
million.10 Physical Disaster Loans may be used for repairs and replacements to real property,
machinery, equipment, fixtures, inventory, and leasehold improvements that are not covered by
insurance.11 Physical Disaster Loans for businesses may utilize up to 20% of the verified loss
amount for mitigation measures in an effort to prevent loss should a similar disaster occur in the
future. Interest rates for Business Physical Disaster Loans for businesses must be no lower than
4% and no higher than 8%.12
Economic Injury Disaster Loans
EIDLs are available only to small businesses as defined by SBA size regulations, which vary
from industry to industry.13 For example, to be considered small, most manufacturing firms must
have no more than 500 employees and most retail trade firms must have no more than $7 million
in average annual sales. Small agricultural cooperatives and most private and nonprofit
organizations that have suffered economic losses as the result of a declared disaster are also
eligible for EIDLs. The maximum loan amount for an EIDL is $2 million. The loan can have a
maturity of up to 30 years and has an interest rate of 4% or less.14
Pre-Disaster Mitigation Loan Program
To support FEMA’s Pre-Disaster Mitigation Program, SBA may make low-interest, fixed-rate
loans to businesses to finance measures to protect commercial property, leasehold improvements,
or contents from disaster-related damages that may occur in the future. A business that
participates in the program may borrow up to $50,000 each fiscal year.15 The business applying
for the loan must be located in a participating pre-disaster mitigation community.16 Additionally,
if the mitigation measures are designed to protect against flooding, the location of the business
must be within a Special Flood Hazard Area (SFHA).17 The interest rate for a pre-disaster
mitigation loan is fixed at 4%.18

10 P.L. 110-246, the Food, Conservation, and Energy Act of 2008 (subtitle: Small Business Disaster Response and Loan
Improvements Act of 2008) Note: At the time of this report, the Code of Federal Regulations had not been updated to
reflect this amount.
11 Leasehold is a fixed asset and gives the right to hold or use property for a fixed period of time at a given price,
without transfer of ownership, on the basis of a lease contract.
12 13 C.F.R. § 123.203.
13 13 C.F.R. § 123.300. Size standards vary according to a variety of factors, including industry type, average firm size,
and start-up costs and entry barriers. For further analysis, see CRS Report R40860, Defining Small Business: An
Historical Analysis of Contemporary Issues
, by Robert Jay Dilger.
14 13 C.F.R. § 123.302.
15 For further analysis of FEMA’s Pre-Disaster Mitigation Program, see CRS Report RL34537, FEMA’s Pre-Disaster
Mitigation Program: Overview and Issues
, by Francis X. McCarthy and Natalie Keegan.
16 13 C.F.R. Sec. 123.403(a). A community interested in more information on the pre-disaster program can contact its
FEMA regional office or visit the FEMA website at http://www.fema.gov.
17 13 C.F.R. § 123.403(b).
18 13 C.F.R. § 123.406.
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A Pre-Disaster Mitigation Loan may not be made if
• the business is primarily engaged in political or lobbying activities;19
• the business derives more than one-third of its revenues from legal gambling
activities;20 or
• any of the principal owners of the business are currently incarcerated, on parole,
or on probation.21
Declared Disasters as Defined by SBA
Only victims located in a declared disaster area (and contiguous counties) are eligible to apply for
disaster loans. Disaster declarations are “official notices recognizing that specific geographic
areas have been damaged by floods and other acts of nature, riots, civil disorders, or industrial
accidents such as oil spills.”22 Usually, the incident must be sudden and cause severe physical
damage or substantial economic injury. For example, the contamination of food supplies or
natural events that cause the sudden displacement or closure of fishing waters may result in a
disaster declaration and eligibility for SBA assistance. In contrast, some slow-onset events such
as shoreline erosion or gradual land settling are not viewed by SBA as declarable disasters.
Droughts and below-average water levels in lakes, reservoirs, and other bodies of water may,
however, warrant declarations.23
Types of Declarations
Five categories of declarations put the SBA Disaster Loan Program into effect. These include two
types of presidential major disaster declarations as authorized by the Robert T. Stafford Disaster
Relief and Emergency Assistance Act (the Stafford Act),24 and three types of SBA declarations.25
The category of declaration dictates the type of disaster loans available but has no bearing on loan
terms or loan caps. The following describes each type of declaration:
1. The President declares a major disaster, or an emergency, and authorizes both
Individual Assistance (IA) and Public Assistance (PA).26 When the President

19 13 C.F.R. § 123.404(n).
20 13 C.F.R. § 123.404(k).
21 13 C.F.R. § 123.404(a).
22 13 C.F.R. § 123.2.
23 Ibid. Areas affected by droughts and below-average water levels are only eligible for Economic Injury Disaster
Loans, which are discussed later in this report.
24 P.L. 93-288, 42 U.S.C. 5721 et seq.
25 Disaster declarations are published in the Federal Register and can also be found on the SBA website at
http://www.sba.gov/services/disasterassistance/basics/recentdisaster/SERV_RECENT_WV_11750.html.
26 Administered by FEMA, Individual Assistance (IA) includes various forms of help for families and individuals
following a disaster event. The assistance authorized by the Stafford Act can include housing assistance, disaster
unemployment assistance, crisis counseling, and other programs intended to address people’s needs. Public Assistance
(PA) provides various categories of assistance to state and local governments and nonprofit organizations. Principally,
PA covers the repair or replacement of infrastructure (roads, bridges, public buildings, etc.), but it also includes debris
removal and emergency protective measures, which cover additional costs incurred by local public safety groups
through their actions in responding to the disaster. FEMA’s PA program provides assistance only to public and
(continued...)
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issues such a declaration, SBA Disaster Loan loans become available to affected
homeowners, renters, businesses of all sizes, and nonprofit organizations.
2. The President makes a major disaster declaration that only provides the state with
PA. In such a case, a private nonprofit entity that provides noncritical services
may be eligible for an SBA loan. The entity must first have applied for an SBA
loan and must have been deemed ineligible or must have received the maximum
amount of assistance from SBA before seeking grant assistance from FEMA.27
Home and physical property loans are not provided if the declaration only
provides PA.
3. The SBA administrator issues an SBA physical disaster declaration.28 In other
cases, the governor of a state may submit a written request to the SBA
administrator to issue a physical disaster declaration.29 When the SBA
administrator makes such a declaration, disaster loans become available for
homeowners, renters, businesses of all sizes, and nonprofit organizations in
primary and contiguous counties.
4. The SBA administrator may make an EIDL declaration when SBA receives a
certification from a state governor that at least five small businesses have
suffered substantial economic injury as a result of a disaster. This declaration is
offered only when other viable forms of financial assistance are unavailable.
EIDL declarations provide Economic Injury Disaster Loans to small businesses,
small agricultural cooperatives, and most private nonprofit organizations.
5. The SBA administrator may issue a declaration for EIDL loans based on the
determination of a natural disaster by the Secretary of Agriculture.30 These loans
are available to small businesses, small agricultural cooperatives, and most
private nonprofit organizations in primary and contiguous counties. Additionally,
the SBA administrator may issue a declaration based on the determination of the
Secretary of Commerce that a fishery resource disaster or commercial fishery
failure has occurred.31
Frequency of Declarations
As shown in Table 1 (also see Figure 1), 1,612 disaster declarations, an average of 322 a year,
were issued from 2005 through 2009. The greatest number of declarations, an average of 200 a
year, originated from the Secretary of Agriculture. In contrast, the fewest declarations, averaging
less than one per year, came from the Secretary of Commerce.

(...continued)
nonprofit entities. For further analysis of Stafford Act declarations, see CRS Report RL34146, FEMA’s Disaster
Declaration Process: A Primer
, by Francis X. McCarthy.
27 13 C.F.R. § 123.3(2). See also 42 U.S.C. § 5172(a)(3).
28 Some SBA declarations are based on criteria such as the occurrence of at least a minimum amount of uninsured
physical damage to buildings, machinery, inventory, homes, and other property. Generally, this minimum is at least 25
homes or businesses (or some combination of the two) that have sustained uninsured losses of 40% or more in any
county or other smaller political subdivision of a state or U.S. possession. See 13 C.F.R. § 123.3(3)(ii).
29 13 C.F.R. § 123.3(3)(iii).
30 13 C.F.R. § 123.3(4).
31 15 U.S.C. § 632(k)(1).
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Table 1. Disaster and Emergency Declarations
FY2005 to FY2009, by type of declaration
Annual
Type
of
Declaration 2005 2006 2007 2008 2009
Average
Presidential
21 25 33 37 25 28.2
Presidential (PA Only)
26
28
40
53
57
40.8
SBA
Agency
32 35 44 55 40 41.2
EIDL
Only—7(b)2(D)
3 5 29 7 15 11.8
Secretary
of
Agriculture
226 268 190 167 149 200.0
Secretary of Commerce
0
2
0
0
0
0.4
Total
308 363 336 319 286 322.4
Source: Data provided by SBA and available from the CRS author upon request.
Figure 1. Disaster and Emergency Declarations
FY2005 to FY2009, by type of declaration

Source: Data provided by SBA and available from the CRS author upon request.
SBA Disaster Loan Program and Statistics
As shown in Table 2, SBA approved 362,726 applications for Home Disaster Loans from 2000 to
2009.32 The yearly average number of approved Home Disaster Loans was 36,273. Additionally,
from 2000 to 2009, SBA approved 73,519 applications for Business Disaster Loans.33 A total of

32 The total includes physical and real property loans.
33 These include loans for physical damage and EIDLs.
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436,245 Home Disaster Loan and Business Disaster Loan applications were approved, for a
yearly average of 43,625. Home loan approvals accounted for 83% of this average.
A large number of Home Disaster Loans were approved in 2001 due mainly to the Nisqually
Earthquake on February 28, 2001. Other noticeable increases in approved applications occurred
in 2005 and especially in 2006, following the Gulf Coast hurricanes.
Table 2. SBA Disaster Loan Approvals
FY2000 to FY2009
Fiscal Year
Home Disaster Loans
Business Disaster Loans
Combined Total
Percentage of
Percentage of
Number
Combined
Number
Combined

Approved
Total
Approved
Total
2000 23,070
81.8%
5,148
18.1% 28,218
2001 43,519
89.1%
5,333
10.8% 48,852
2002 10,114
46.3%
11,715
53.7% 21,829
2003 20,235
78.3%
5,621
21.6% 25,856
2004 25,024
87.8%
3,486
12.1% 28,510
2005 52,677
84.9%
9,398
15.0% 62,075
2006 145,164
85.4%
24,819
14.5% 169,983
2007 11,760
83.9%
2,254
16.1% 14,014
2008 12,755
84.2%
2,373
15.7% 15,128
2009 18,408
84.4%
3,372
15.5% 21,780
Total 362,726
83.0%
73,519
16.9% 436,245
Average 36,273 7,352
43,625
Source: Data provided by SBA and available from the CRS author upon request.
Notes: Numbers have been rounded. Numbers shown in this table represent the numbers of approved disaster
loans. Not all approved loans are accepted by disaster victims and businesses. Therefore, actual loan acceptance
and accepted numbers may be smal er than the numbers shown here.
During the same period, SBA approved, on average, $1.6 billion in Home Disaster Loans each
year.34 In contrast, the average annual amount for business loans was $813 million. As shown in
Figure 2, the amount loaned by SBA’s Disaster Loan Program increased in 2005 and especially in
2006, reflecting the effects of the 2005 Gulf Coast hurricanes.

34 Nominal dollars.
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Figure 2. Nationwide SBA Disaster Loans for Homes and Businesses:
FY2000 to FY2009
2009 constant dollars

Source: Data provided by SBA and available from the CRS author upon request.
Notes: Amounts shown in this figure reflect approved disaster loans. Not all approved loans are accepted by
disaster victims and businesses. Therefore, actual loan acceptance and accepted amounts may be smaller than the
amounts shown here.
As shown in Figure 2, SBA usually approves larger dollar amounts for Home Disaster Loans
than for Business Disaster Loans. However, because of the September 11, 2001, terrorist attacks,
dollar amounts for business loans in 2002 and 2003 exceeded those for home loans.
Possible Issues for the 111th Congress
SBA was widely criticized for its performance following the 2005 Gulf Coast hurricanes.35 SBA
accordingly revised its standard operating procedures in an effort to improve its response time in
processing disaster loan applications. Further, Congress enacted legislation during the 110th
Congress (P.L. 110-246, the Small Business Disaster Response and Loan Improvements Act of
2008) mandating 26 program requirements to reform the loan program. The extent of SBA’s
compliance with the act’s program requirements and success in reducing the amount of time taken
to process disaster loans continue to be concerns in the 111th Congress. Other possible issues for
congressional consideration include the integration of the SBA Disaster Loan Program into

35 See, for example, U.S. Government Accountability Office (GAO), Small Business Administration: Additional Steps
Should Be Taken to Address Reforms to the Disaster Loan Program and Improve the Application Process for Future
Disasters
, GAO-09-755, July 29, 2009, summary, http://www.gao.gov/new.items/d09755.pdf; Small Business
Administration: Office of Inspector General, Disaster Loan Program, Washington, DC, February 2006,
http://www.sba.gov/idc/groups/public/documents/sba/oig_feb2006monthlyupdate.pdf; and Small Business
Administration, SBA Disaster Assistance: Post-Gulf Coast Hurricane Reforms, Press Release: 08-92, Washington, DC,
September 12, 2008, http://www.sba.gov/idc/groups/public/documents/sba_homepage/news_release_08_92.pdf.
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FEMA’s upcoming national recovery document, the costs associated with the removal of toxic
drywall following the 2005 hurricanes, SBA’s credit check process, and the debate concerning
funding for the Disaster Loan Program. Each of these matters are discussed below.
Compliance with the Small Business Disaster Response and Loan
Improvements Act of 2008

In response to criticism of SBA’s disaster loan processing, and in an effort to improve SBA’s
Disaster Loan Program, Congress passed the Small Business Disaster Response and Loan
Improvements Act of 2008.36 Among the act’s 26 new program requirements for SBA are
provisions designed to improve coordination efforts with FEMA, ensure that SBA has an
adequate number of full-time-equivalent employees, update or develop a disaster response plan,
and keep Congress better informed concerning the agency’s progress on meeting the act’s
requirements through annual reports. The act is divided into three parts as follows:
Part I, Disaster Planning and Response: Part 1 of the act includes a number of
measures intended to improve SBA’s coordination with other agencies when
responding to disasters. For instance, Section 12062(a)(5) requires the SBA
administrator to ensure that the agency’s disaster assistance programs are
coordinated, to the maximum extent practicable, with FEMA’s disaster assistance
programs. Section 12063(5) requires that the administrator make every effort to
communicate, through radio, television, print, and internet-based outlets, all
relevant information needed by disaster loan applicants. Section 12069(a)
requires that if SBA’s primary facility for disaster loan processing becomes
unavailable, another disaster loan processing facility must be made available
within two days.
Part II, Disaster Lending: Part 2 of the act provides additional loan amounts in
certain circumstances, reforms some of SBA’s loan processes, and grants SBA
authority to defer payments of loans made to homeowners and businesses
affected by the 2005 Gulf Coast hurricanes. For example, Section 12081 grants
the SBA administrator authority to provide additional disaster assistance for
events that cause significant loss of life or damage, Section 12085 establishes an
Expedited Disaster Assistance Loan Program, and Section 12086 allows the SBA
administrator to carry out a program to refinance Gulf Coast disaster loans.
Part III, Miscellaneous: Part 3 of the act pertains to reporting requirements for
SBA disaster assistance programs. Section 12091 requires, after a major disaster,
the SBA administrator to submit to the Senate Committee on Small Business and
Entrepreneurship, the Senate Committee on Appropriations, the House
Committee on Small Business, and the House Committee on Appropriations a
report on the operation of the Disaster Loan Program not later than the fifth
business day of each month during the applicable period for a major disaster. The
reports must include the daily average lending volume (in number of loans and
dollars), the percentage by which each category has increased or decreased since
the previous report, the amount of funding available for loans, and an estimate of

36 Subtitle B of P.L. 110-246, § 12051.
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how long the available funding for salaries and expenses will last, based on
SBA’s spending rate.
A GAO report released in July 2009 found that SBA met 13 of the 26 requirements of the act,
partially addressed eight, and did not take action on five.
Among the critical issues the 2008 act aims to address is the need to inform affected businesses
and persons about types of assistance available from SBA and how to access such assistance, and
the need for SBA to process high volumes of applications effectively and efficiently while
coordinating assistance with other agencies.
One of the requirements GAO found to be only partially addressed was that SBA develop a
region-specific marketing and outreach program to make information readily available to regional
entities. GAO also reported that SBA had only partially met the act’s requirement to fully develop
a disaster recovery plan. The plan must include
• an assessment of the various types of disasters likely to occur in each SBA
region;
• an assessment of the likely demand for SBA assistance;
• an assessment of SBA’s resource needs related to information technology,
telecommunications, human resources, and office space; and
• guidelines on how SBA intends to coordinate with other agencies.
In response to the report, SBA officials acknowledged that the agency had not yet completely
addressed some of the reforms because implementing new programs and changing existing
programs would require it to make extensive changes that would take time.37 The SBA response,
paraphrased by GAO, was as follows:
SBA generally agreed with our recommendations and stated the agency’s plan to incorporate
them into its ongoing efforts to implement the Act and improve the application process.
Specifically, SBA said that the agency has plans to expand its outreach efforts to ensure the
public in all regions of the country are more aware of SBA disaster assistance programs
before a disaster strikes. SBA is also planning to submit both the required annual report, and
the 2009 revision to its DRP [Disaster Recovery Program] to Congress by November 15,
2009. Additionally, SBA officials said the agency has plans to develop an implementation
plan for completion of the remaining provisions. Finally, in response to our recommendation
on the application process, the officials cited the electronic loan application as an example of
its efforts to improve the application process and said the agency has plans to continue its
improvement efforts and make such improvements an ongoing priority.38

37 U.S. Government Accountability Office, Small Business Administration: Additional Steps Should Be Taken to
Address Reforms to the Disaster Loan Program and Improve the Application Process for Future Disasters
, July 29,
2009, http://www.house.gov/smbiz/hearings/hearing-7-29-09-SBA-oversight/GAO-Report.pdf. According to SBA, the
five provisions require no action by SBA at this time because they are discretionary, or require additional
appropriations to satisfy the act’s requirements.
38 Ibid., p. 32.
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On September 25, 2009, Manuel Gonzalez, Director of the SBA Houston District Office,39
testified before the Senate Committee on Small Business and Entrepreneurship that the agency’s
2008 response to Hurricane Ike demonstrated programmatic improvements. For example, loan
processing times had decreased and better interagency cooperation had been achieved. Gonzalez
conceded, however, that there was still room for improvement. According to Gonzalez, SBA
learned a number of lessons from the Gulf Coast hurricanes that have led to improved disaster
assistance. These reforms included
• implementing new programs such as bridge loans or private disaster loans
following catastrophic disasters; 40
• working to improve coordination efforts with FEMA and the Internal Revenue
Service (IRS);
• extending eligibility of the SBA Economic Injury Disaster Loan program to
nonprofit groups; and
• significantly shortening the time taken to process loans.
Despite these reported improvements, including implementation of the remaining requirements
set forth in the Small Business Disaster Response and Loan Improvements Act of 2008 (P.L. 110-
246), the GAO report suggests that SBA is behind schedule in executing reforms. Among the
oversight questions that might arise from the GAO findings are what circumstances have impeded
the reform requirements of the act and what additional efforts are needed to overcome the
impediments.
Improved Time Frame for Loan Processing
At the September 25, 2009, hearing, Director Gonzalez stated that revised procedures that were
established before Hurricane Ike reduced the amount of time needed to process an average loan.
Senator Mary Landrieu—Chairman of the Senate Committee on Small Business and
Entrepreneurship and the Senate Committee on Homeland Security and Governmental Affairs,
Subcommittee on Disaster Recovery—agreed with Gonzalez, noting that local officials in
southwest Louisiana reported that SBA was better prepared and more responsive following
Hurricanes Gustav and Ike. For example, SBA took five days to process a home loan following
Ike, compared to the 90 days it had taken after Hurricanes Katrina and Rita. The processing time
for business loans also improved, averaging just over a week, compared to the 70-day average
following Hurricanes Katrina and Rita.41

39 Testimony of Manuel Gonzalez, director, Houston District Office, Small Business Administration, in U.S. Congress,
Senate Committee on Small Business and Entrepreneurship, Disaster Recovery in Galveston, hearing, 111th Cong., 1st
sess., September 25, 2009.
40 Bridge loans are part of the SBA’s America’s Recovery Capital (ARC) Loan Program. They provide up to $35,000 in
short-term relief for viable small businesses facing immediate financial hardship to help them endure uncertain
economic times and return to profitability. Created under the American Recovery and Reinvestment
Act of 2009 (P.L. 111-5), the temporary ARC program offers interest-free loans that carry a 100% guaranty from SBA
to the lender and require no fees to be paid to SBA. Loan proceeds are provided over a six-month period, and
repayment of the ARC loan principal is to be deferred for 12 months after the last disbursement of the proceeds.
Repayment can extend up to five years. Each small business is limited to one ARC loan.
41 Opening Statement of Senator Mary Landrieu, in U.S. Congress, Senate Committee on Small Business and
Entrepreneurship, A Year Later: Lessons Learned, Progress Made, and Challenges that Remain from Hurricane Ike,
hearing, 111th Cong., 1st sess., September 25, 2009.
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Although processing times have decreased, Members may continue to be concerned about the
timeliness of the disaster loan decisions. If so, Congress could conduct oversight hearings on
methods for reducing processing time while guarding against the unintended consequence of an
increased potential for loan fraud and abuse.
Disaster Recovery Framework
On July 23, 2009, the House Committee on Transportation and Infrastructure, Subcommittee on
Economic Development, Public Buildings and Emergency Management, held a hearing to
examine efforts to reduce bureaucratic obstacles to efficient and timely disaster recovery. One
witness suggested that a possible method for improving disaster recovery efforts might be the
creation of a “Disaster Recovery Framework” to accompany the National Response Framework
(NRF).42 The Department of Homeland Security and FEMA developed the NRF to guide the
nation’s response to emergencies and major disasters.
In October 2009, DHS issued an invitation to stakeholders to meet and discuss the possibility of
creating a companion document for the NRF, which would focus on recovery. If the recovery
framework mirrored the NRF, it would likely designate roles and responsibilities for all entities
involved in recovery, including individuals and households, all levels of government, and the
private and nonprofit sectors. The new document would most likely also designate certain federal
agencies as lead or supporting agencies for certain phases and types of recovery projects.
Given the large role of SBA’s Disaster Loan Program in disaster recovery and the program’s
potential prominence in a national recovery framework, Congress might choose to raise a number
of oversight questions about how well SBA’s responsibilities are defined and executed. Areas that
might be examined and questions asked might include the following:
• What agencies would be involved in the framework, and what would their roles
and responsibilities be?
• What role would SBA play in a recovery framework, and what role would it not
play if a recovery framework were implemented?
• Would SBA be positively or negatively affected should a recovery framework
document be adopted?
• Would a recovery framework assist SBA in granting loans, or constrain the
agency by creating unnecessary bureaucracy?
• What mechanisms are in place to ensure interagency cooperation?
• How would a recovery framework fit, or coexist, with the NRF?
• What is the standard for recovery? Is it the community’s pre-disaster condition,
or would some other standard of “recovered” be used?
• Who would invoke the recovery framework?

42 Testimony of Francis X. McCarthy, Analyst in Emergency Management Policy, Congressional Research Service, in
U.S. Congress, House Committee on Transportation and Infrastructure, Subcommittee on Economic Development, in
Public Buildings and Emergency Management, Post Katrina: What It Takes to Cut the Bureaucracy and Assure a More
Rapid Response After A Catastrophe,
hearing, 111th Cong., 1st sess., July 23, 2009.
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• Would the leadership used in the NRF change once a recovery framework was
invoked?
• During the stakeholders’ conference, FEMA officials suggested that a recovery
framework might be issued in June 2010. Is this timeline feasible, or could it lead
to a hastily developed document?
Consumer Product Safety
Drywall imported from China was used to repair and replace some of the structures damaged in
the 2005 and 2008 Gulf Coast hurricanes. Chinese drywall is generally less expensive, making its
use arguably desirable as a cost-saving measure over more expensive, domestically produced
drywall. Some of the imported drywall, however, was alleged to be contaminated with sulfuric
acid. According to Representative Mario Diaz-Balart:
Recent reports are that about 100,000 homes could be affected. This imported drywall from
China contains sulfuric gas, which actually has corroded copper electrical wiring. It’s
corroded air conditioning units and copper pipes, including to the point where there have
been fire hazards. It’s also a health issue. It has created sinus problems, created bloody noses,
and headaches. It has created bronchitis and pneumonia in children, and now we hear that it’s
also harmful to pregnant women. As a matter of fact, Mr. Chairman, on April 17, the Wall
Street Journal
stated that the University of Southern California’s School of Medicine, a
professor there, stated “that sulfur compound gasses, even at low levels, have been found to
cause respiratory problems such as asthma.43
To eliminate the problem, observers have called for the drywall to be removed and replaced. To
some, the toxic drywall has constituted a second disaster. Concern over the product prompted
Senators Bill Nelson, Mary Landrieu, Mark Warner, and Jim Webb to request that economic
assistance from FEMA be given to homeowners affected by toxic drywall. 44
Many of the owners of structures that have been replaced or repaired using the drywall received
SBA disaster loans; however, SBA views the toxic drywall as a consumer product problem.45
Hence, the agency does not plan to extend the amount of current loans or provide additional or
new loans to replace the drywall. Even if the loans were to be extended, it is unclear how many
households would be approved for an extension because numerous homeowners (particularly in
Louisiana) have defaulted on their SBA disaster loans and are therefore unlikely to be approved
for second loans. It is also unclear who would fund the removal and replacement of the drywall in
foreclosed homes. Unless the drywall is removed, resale of the home will be difficult.
H.R. 3854, the Small Business Financing and Investment Act of 2009, passed the House on
October 29, 2009, and was referred to the Senate Committee on Small Business and
Entrepreneurship. The bill would authorize the SBA Administrator to make disaster loans
available to homeowners “for the repair and replacement” of toxic drywall manufactured in
China.

43 Representative Mario Diaz-Balart, “Study of Effect of Drywall Presence on Foreclosures,” remarks in the House,
Congressional Record, daily edition, May 7, 2009, p. H5363.
44 Bill Nelson, Mary Landrieu, Mark Warner, et al., “Letter to Craig Fugate, Administrator, Federal Emergency
Management Agency,” October 1, 2009, http://billnelson.senate.gov/news/details.cfm?id=318788&.
45 In an email exchange on November 5, 2009, between the author and the SBA legislative liaison.
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Another policy option that might help owners of affected properties is loan forgiveness, or a loan
waiver. As a general rule, SBA does not offer loan forgiveness unless Congress intervenes. The
only known exception was granted after Hurricane Betsy, when President Lyndon B. Johnson
signed the Southeast Hurricane Disaster Relief Act of 1965.46 Section 3 of the act authorized the
SBA administrator to grant disaster loan forgiveness or issue waivers for property lost or
damaged in Florida, Louisiana, and Mississippi as a result of Hurricane Betsy. The act stated that
SBA,
to the extent such loss or damage is not compensated for by insurance or otherwise, (1) shall
at the borrower’s option on that part of any loan in excess of $500, (A) cancel up to $1,800
of the loan, or (B) waive interest due on the loan in a total amount of not more than $1,800
over a period not to exceed three years; and (2) may lend to a privately owned school,
college, or university without regard to whether the required financial assistance is otherwise
available from private sources, and may waive interest payments and defer principal
payments on such a loan for the first three years of the term of the loan.47
Credit Checks for SBA Disaster Loans
On March 28, 2008, the SBA Office of Inspector General (OIG) raised an issue of potential
congressional concern when it released a study that was critical of the agency’s Office of Disaster
Administration (ODA). The report indicated that ODA (1) did not perform annual credit reviews,
as required by SBA’s standard operating procedures, before making distributions of disaster loan
proceeds; (2) did not obtain updated financial information; and (3) failed to cancel loans in
instances where the borrower had no repayment ability. As a result, the Office of Inspector
General stated that the ODA inappropriately extended credit reviews, first from 12 to 16 months,
and later to 24 months. According to the Office of Inspector General, the extensions arguably
eliminated credit reviews for 10,100 disaster loans totaling over $1 billion in disbursements
without assurance that borrowers had the ability to repay the loans.48 The OIG further concluded
that the ODA circumvented a critical management control by disbursing additional funds on these
loans without first determining whether adverse changes had occurred in the borrowers’ financial
condition that could have compromised their ability to repay the additional loan proceeds. The
OIG reported that both extensions were made outside the normal process for amending standard
operating procedures, which require clearance by senior agency executives who are external to
the ODA.49
The ODA responded to the study, stating that the OIG report failed to recognize the devastating
effects of the Gulf Coast hurricanes on the financial condition of borrowers and the need for SBA
to adjust its lending policies accordingly. The ODA argued that because the hurricanes negatively
affected borrowers’ credit, SBA needed to grant the borrowers additional opportunities to explain
poor credit history and credit bureau reports. The ODA further claimed that disaster-related poor
credit may have been beyond the borrowers’ control (because of the disaster) and that continuing

46 H.R. 11539 was signed into law November 8, 1965. Hurricane Betsy made landfall on August 27, 1965.
47 P.L. 89-339, 79 Stat. 1301.
48 Debra S. Ritt, Assistant Inspector General for Auditing, Annual Credit Reviews for Gulf Coast Hurricane Disaster
Loan Disbursements
, U.S. Small Business Administration, Office of Inspector General, 08-10, Washington, DC, March
28, 2008, p. 8, http://www.sba.gov/idc/groups/public/documents/sba/oig_dl_8-10.pdf.
49 Ibid., p. 3.
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to enforce the standard credit review policies would have created additional hardships for
borrowers.50
Although the OIG conceded that the damage caused by the 200551 hurricanes was extensive, it
concluded that ODA lacked the authority to circumvent the regulatory requirement that loan
disbursements be made only to individuals who have the ability to repay their loans. The OIG
further argued that Congress intends for the loans to be repaid and that the Disaster Loan Program
is not a grant program, indicating that the OIG suspected that some of the loans would not be
repaid.52
Possible Reforms to the Disaster Loan Program
Critics of SBA’s Disaster Loan Program argue that it should be terminated and the responsibility
for disaster assistance transferred to businesses and individuals through private insurance. Other
critics argue that the federal share of disaster and emergency costs is disproportionately high
when compared to state, local, and individual spending on disaster relief. They add that reforms
are needed to contain the costs of federal disaster assistance.53 They point to an OMB report54 that
federal spending on disasters is predicted to rise from $3.6 billion for FY2010 to $225.5 billion in
FY2019 as evidence of the need to contain costs.55
Bills to terminate the Disaster Loan Program have been introduced a number of times in the past.
For example, H.R. 3728, the Disaster Relief Partnership Act, in the 105th Congress, would have
terminated the SBA Disaster Loan Program and amended the Stafford Act to establish a national
insurance program. If it had been enacted, individuals would have become responsible for
insuring their property against disasters without any federal assistance.
The following sections provide (1) SBA data on the funding of disaster loans for the Gulf Coast,
and (2) a national comparison of SBA loans and insurance losses for disasters from the years
2000 to 2009. The data show the amount of money loaned through the SBA Disaster Loan
Program. Comparing disaster loan amounts to catastrophic insurance losses could help frame a
debate about shifting some or all of the responsibility for funding recovery from the federal
government to individuals by privatizing disaster loss through the use of insurance.

50 Ibid., p. 6.
51 The response did not cover the 2008 hurricane season.
52 Ibid., p. 4.
53 For example, see James F. Miskel, Disaster Response and Homeland Security: What Works, What Doesn't
(Westport, CT: Westport Press, 2006), pp. 126-127.
54 Office of Management and Budget, A New Era of Responsibility: Renewing America’s Promise, Washington, DC,
2009, p. 121, http://www.gpoaccess.gov/usbudget/fy10/pdf/fy10-newera.pdf.
55 Figures were based on the statistical probability of other large-scale disasters in the future. The OMB report did not
discuss the methodology used to derive these figures. (The Senate explored alternative funding options for disaster
assistance in the 1980s. See Task Force Report on the Environmental Protection Agency, the Small Business
Administration, and the Federal Emergency Management Agency, President’s Private Sector Survey on Cost Control,
Washington, DC, April 15, 1983, pp. 39-45.)
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National SBA Data: 2000 to 2009
Nationally, from 2000 to 2009, SBA approved 362,726 applications for Home Disaster Loans,
representing a yearly average of 36,273 approved applications. During the same period, the
average annual amount approved for Home Disaster Loans was $1.6 billion.56 With regard to
Business Disaster Loans, SBA approved 73,519 applications, for a total of $7.75 billion, during
the period. The average number of approved business loan applications each year was 7,352, and
the average annual amount approved was $797 million. The devastation caused by the 2005
hurricanes pushed the average number of applications and loans higher. As previously noted, the
loan activity due to the 2005 hurricanes produced outlying figures that skewed the data results
(see Table 2, Figure B-1, and Figure B-2). If the data exclude 2005 and 2006, the national
average of SBA approved Home Disaster Loan applications drops to 164,885. The average annual
amount falls to $599 million. When these years are excluded, the number of approved business
loan applications drops to 39,902, producing an average annual loan amount of $536 million.
Private Insurance Disaster Losses: 2000 to 2009
SBA disaster loan amounts are generally less than the catastrophic loss amounts paid out by the
insurance industry. Private insurance companies paid out a total of $214 billion for disaster-
related losses from 2000 to 2009, with a yearly average of $21 billion. If the year 2005 is
removed, the total cost to private insurance companies decreases to $145 billion, with a yearly
average of $16 billion.57 In 2006, however, SBA Home Disaster Loans and Business Disaster
Loans (because of Hurricane Katrina) exceeded the private insurance industry’s expenditures by
roughly $2 billion. (See Figure 3 for comparisons.)

56 Nominal dollars.
57 Some of the figures in this section have been rounded.
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Figure 3. National Comparison of SBA Loans to Private Insurance Disaster Losses:
FY2000 to FY2009
2009 constant dollars

Source: Data provided by SBA and available from the CRS author upon request. Insurance data are derived
from Property Claims Service/ISO; Insurance Information Institute.
Notes: Amounts shown in this figure represent the number of approved disaster loans. Not all approved loans
are accepted by disaster victims and businesses. Therefore, actual loan acceptance and amounts may be less than
the amounts shown here. Insurance data for 2009 were available only as a rounded number. Amounts shown in
this figure present SBA loans in aggregate form. Disaggregated SBA amounts can be found in Appendix A.
SBA Assistance Provided After the Gulf Coast Hurricanes of 2005 and 2008
According to SBA, since the summer of 2005, the largest distributions of disaster loans (in terms
of number of applications and dollar amounts) have been for recovery efforts after the Gulf Coast
hurricanes. As of July 2009, SBA had approved more than 150,000 Home Disaster Loans, 22,000
Business Disaster Loans, and 3,400 EIDLs to applicants in the Gulf Coast region (see Table 3).
The total amounts for these loans include $8.7 billion in Home Disaster Loans, $2.8 billion in
business loans, and $211 million in EIDL s (see Table 4 and Figure B-4, Figure B-5, and Figure
B-6
).
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Table 3. SBA Disaster Loans by Type of Approved Application
Number of approved applications for the Gulf Coast as of July 2009
Program
Alabama Florida Louisiana Mississippi Texas Total
Home Disaster Loans
2,497
13,988
86,816
31,243
15,862
150,406
Business Disaster Loans
360
2,578
12,904
4,386
2,485
22,713
Economic Injury
82 812
1,798 335 406
3,433
Disaster Loans
Total
2,939 17,378 101,518 35,964 18,753 176,552
Source: Data provided by SBA and available from the CRS author upon request. For graphic representations,
see Figure B-1, Figure B-2, and Figure B-3.
Notes: SBA provided disaster loans to Alabama and Florida for Hurricanes Katrina, Rita, and Wilma. Alabama
and Florida did not receive loans for Hurricanes Gustav and Ike. SBA provided disaster loans to Mississippi for
Hurricanes Katrina, Rita, Wilma, and Gustav. Mississippi did not receive loans for Hurricane Ike. SBA provided
disaster loans to Texas for Hurricanes Katrina, Rita, Wilma, and Ike. Texas did not receive loans for Hurricane
Gustav. Louisiana received assistance for al five hurricanes.

Table 4. SBA Disaster Loans by Gulf Coast State
Cumulative loan amounts for the Gulf Coast as of July 2009; dollars in thousands
Program
Alabama Florida Louisiana Mississippi Texas
Total
Home Disaster Loans
96,244
450,170
5,445,383
2,069,160
682,976
8,743,933
Business Disaster Loans
47,052
412,085
1,522,443
545,402
297,805
2,824,787
Economic Injury Disaster
7,221 48,917 111,329 19,267 24,186 210,919
Loans
Total
150,517 911,172 7,079,155 2,633,829 1,004,967 11,779,639
Source: Data provided by SBA and available from the CRS author upon request. For a graphic representation,
see Figure B-4, Figure B-5, and Figure B-6.
Notes: See Table 3 notes.

Prior to FY2005, SBA’s Disaster Loan Program had an outstanding loan balance of $4 billion.
The balance increased to $9 billion by FY2007. In FY2008, the balance decreased to $8.6 billion.
According to SBA, two-thirds of the $8.6 billion in outstanding loans pertained to Gulf Coast
states, including approximately $3 billion for Business Disaster Loans or Home Disaster Loans in
Louisiana, more than $2 billion for Florida and Mississippi, and roughly $7 million for Texas.
Most of the loans resulted from the hurricanes that occurred in 2005.58

58 U.S. Small Business Administration, Agency Financial Report: FY2008, November 17, 2008, pp. 16-17,
http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_abtsba_2008_afr_001-030.pdf.
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Figure 4 displays the unpaid principal balances for SBA disaster loans as of September 30, 2008.
More than half (58%) of the unpaid loans were associated with Hurricanes Katrina, Rita, and
Wilma. Of these, 44% were for Home Disaster Loans and 14% for Business Disaster Loans.
According to SBA, defaulted loans have increased the purchase rates by 60% in FY2007 and 80%
in FY2008.59
Figure 4. Disaster Loan Unpaid Principal Balance by Category
As of September 30, 2008

Source: U.S. Small Business Administration, Financial Report: FY2008, November 17, 2008.
Notes: More recent data have not been reported by SBA.
Privatizing Disaster Loans
As previously mentioned, several policy scholars have argued that federal disaster assistance
should be privatized. Their primary argument is that government programs are overly generous to
disaster victims. Hence, federal disaster assistance functions as a disincentive because individuals
and households expect to rely on it after a disaster instead of investing in mitigation,
preparedness, and other resiliency practices. One way to shift the responsibility for recovery from
the federal government to citizens would be to privatize federal disaster assistance programs, such
as the Disaster Loan Program. Proponents maintain that some of the benefits associated with
privatization might include
• reducing federal costs for disaster assistance;
• rewarding behaviors that protect against future disasters through insurance
deductibles; and

59 Ibid., p. 16. The dollar volume of loan guaranties purchased by SBA divided by the dollar amount of the guarantied
loan portfolio outstanding each month.
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• preventing development in hazard prone areas because insuring properties in
these areas might be cost prohibitive.
Other observers, however, could note some potential negative aspects and questions about
privatizing the Disaster Loan Program. Among them are the following:
• Some individuals might not be able to afford insurance, so they might risk going
without it. The National Flood Insurance Program (NFIP) was put into place to
make flood insurance more affordable. The utility and success of the NFIP has
been subject to debate. Would another program similar to the NFIP need to be put
into place? What resources would be available to individuals and households who
could not afford to purchase insurance? Would the federal government refuse to
help them?
• What would happen if only affluent households could afford to purchase hazard
insurance? How would one determine that an individual or household could have
purchased insurance, but chose not to?
• Would individuals be required to purchase disaster insurance? If so, how would
this requirement be enforced? Would all Americans be required to purchase
disaster coverage, or just those in hazardous areas? Moreover, who would be
responsible for determining what hazards are specific to what areas?
• What if the private insurance industry decided not to cover a certain area or type
of hazard? Would this be considered a market failure? Would there be a need for
federal insurance to fill the void?
• Would the private insurance industry be able to cover the costs associated with a
catastrophic disaster? Would a disaster the size and scope of Hurricane Katrina
bankrupt the industry?
• Would the private insurance industry continue to fund recovery projects that took
as long as a decade to complete?
• Could the nation recover from an incident as large as Hurricane Katrina without
the use of federal disaster assistance?
Legislation Enacted in the 111th Congress
H.R. 1105, the Omnibus Appropriations Act, 2009 (P.L. 111-8), became law on March 11, 2009.
It directed that “all disaster loans issued in Alaska or North Dakota shall be administered by the
Small Business Administration and shall not be sold during fiscal year 2009.”60
The 111th Congress also extended the authorization of the Disaster Loan Program three times. P.L.
111-43, to “Provide an Additional Temporary Extension under the Small Business Act,” extended
reauthorization for SBA and its programs until September 30, 2009. P.L. 111-66, to “Provide an
Additional Temporary Extension under the Small Business Act,” extended the same

60 In 2002, SBA began a program to sell off some of its disaster loans to third parties (private banks). An initial study
found that third parties generally purchased loans for amounts higher than the value of the loan. However, there was
concern that the process negatively influenced SBA’s subsidy rates. Due in part to this concern, Members from Alaska
and North Dakota sponsored provisions that made it unlawful to sell loans in those states.
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reauthorization until October 31, 2009. P.L. 111-89, to “Provide for an Additional Temporary
Extension of Programs under the Small Business Act and the Small Business Investment Act of
1958,” made another extension reauthorizing SBA and its programs until April 30, 2010. P.L.
111-162 reauthorized SBA and its programs until July 31, 2010.
Selected Examples of Pending Legislation
and Resolutions61

H.R. 3743
H.R. 3743, the Small Business Disaster Readiness and Reform Act of 2009, was introduced on
October 7, 2009, by Representative Parker Griffith. The bill passed the House on November 6,
2009. It was received in the Senate on November 9, 2009, and referred to the Committee on
Small Business and Entrepreneurship.
H.R. 3743 introduces a number of amendments that would modify SBA’s Disaster Loan Program,
including the following:
• Section 3 of the bill would amend Section 7(b) of the Small Business Act to
increase Business Disaster Loans to $3 million dollars.62
• Section 4 of the bill would amend Section 7(f) of the Small Business Act and
revise payment terms by not requiring loan repayment until 12 months after the
final loan disbursement was made.
• Section 5 of the bill would amend Section 7(f) of the Small Business Act and
alter loan disbursement rates by providing a formula based on disaster loan
amounts.
• Section 6 of the bill would amend Section 7(f) of the Small Business Act and
provide the SBA administrator authority to provide grants up to $100,000 to
businesses that have been rejected for a conventional disaster loan. Section 6 also
authorizes appropriations for the grants.
• Section 7 of the bill would amend Section 40 of the Small Business Act and
authorize Regional Disaster Working Groups to carry out responsibilities
pertaining to loan-making activities. Section 7 would also require the SBA
administrator, in conjunction with each regional administrator, to develop a
disaster preparedness and response plan for each SBA region.
• Section 8 of the bill would amend Section 7(b) of the Small Business Act and
authorize the SBA administrator to provide grants to small business, women,
veteran, and chamber of commerce centers to help victims apply for disaster

61 Examples of pending legislation were gathered by searching the Legislative Information Service legislative database.
The terms used for the search included “SBA” and “disaster loans.” Examples of legislation are representative, but not
exhaustive.
62 Including aggregate loan amounts.
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loans. Section 8 would also authorize $50 million for these grants for FY2010
and FY2011.
• Section 9 of the bill would amend Section 7(b) of the Small Business Act and
authorize the SBA administrator to provide loans for the repair and replacement
of toxic drywall manufactured in China.
H.R. 3854
H.R. 3854, the Small Business Financing and Investment Act of 2009, was introduced on October
20, 2009, by Representative Kent Schrader and five original cosponsors.63 The bill was reported
by the Committee on Small Business on October 26, 2009, and passed the House on October 29,
2009. It was received in the Senate on November 2, 2009, and referred to the Committee on
Small Business and Entrepreneurship.
Title VII of H.R. 3854 would authorize a number of changes to SBA’s Disaster Loan Program,
including the following:
• Section 801(2)(b) would amend Section 7 of the Small Business Act and revise
the provision governing accepted collateral for Business Disaster Loans if the
total approved amount of the loan was less than or equal to $250,000. In such
cases, the SBA administrator could not require the borrower to use his or her
home as collateral.
• Section 802 would amend Section 7(b) of the Small Business Act in paragraph
(3)(E) by increasing the amount for the Military Reservist Economic Injury
Disaster Loan program from $1.5 million to $3 million. Additionally, Section 802
would amend Section 7(b) by increasing business loan caps from $2 million to $3
million.64
• Section 803 would amend Section 7(f) of the Small Business Act65 and allow the
SBA administrator to defer the repayment of a disaster loan to begin 12 months
after the date on which the final disbursement of an approved amount was made.
Section 803 would also add language stating that the repayment amount would be
calculated solely on the amounts disbursed.66
• Section 804 would amend Section 7(b) of the Small Business Act by adding
several revisions to the disbursement of loans according to the loan amount.
Disbursements would be given in three stages. In most cases, the final
disbursements would not be made until the borrower had produced satisfactory
receipts to demonstrate the proper use of the first and second disbursements.
• Section 805 would amend Section 7(b) of the Small Business Act by creating a
grant program for small businesses affected by a disaster. The program would
offer a grant not exceeding $100,000 to small businesses based on certain
criteria, including that

63 Representatives Clarke, Kirkpatrick, Velázquez, Halvorson, and Skelton.
64 15 U.S.C. 636(b).
65 15 U.S.C. 636(f).
66 Ibid.
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• the business be located in an area affected by the applicable major disaster;
• the owner submit to the SBA administrator a certification of the owner’s
intention to reestablish the business in the same county stricken by the
disaster;
• the owner had applied for a conventional disaster assistance loan and been
rejected; and
• the business had been in existence for at least two years before the disaster
declaration was made.
Section 805 states that the SBA administrator must give priority to small
businesses that the administrator determines to be economically viable but are
unable to meet short-term financial obligations. Section 805 also would authorize
an appropriation to carry out the program.
• Section 806 would amend the Small Business Act to require the SBA
administrator to develop, implement, or maintain a comprehensive written
disaster response plan. Section 806 would add a subsection for the creation of
Regional Disaster Working Groups responsible for loan-making activities. The
SBA administrator, acting through regional administrators, would develop a
disaster preparedness and response plan for each SBA region, in cooperation with
federal, state, and local emergency response authorities and representatives of
businesses located in that region. The measure would also require that the plans
identify and include sub-plans relating to the three types of disasters that are most
likely to occur in the region.67
• Section 807 would amend Section 7(b) of the Small Business Act by creating
Outreach Grants for Loan Applicant Assistance. The grants would provide
application preparation assistance to loan applicants. The SBA administrator
would be authorized to provide grants to the following groups in an area affected
by a disaster: women’s business centers, small business development centers, and
the chamber of commerce. Section 807 would also authorize SBA to provide $50
million for FY2010 and FY2011 to fund such grants.
• Section 808 states that the SBA administrator could make loans available to any
homeowner if his or her primary residence was adversely affected by the
installation of toxic drywall manufactured in China. The loan would be used only
for the repair or replacement of the toxic drywall. (See discussion earlier in this
report under “Consumer Product Safety.”)
• Section 809 would authorize an appropriation for the sums necessary for
administrative expenses and loans under Section 7(b) of the Small Business Act.
H.R. 4609
H.R. 4609, the Southeast Hurricanes Small Business Disaster Relief Act of 2010, was introduced
by Representative Charlie Melancon on February 4, 2010. The bill was referred to the
Subcommittee on Finance and Tax on the same day it was introduced. H.R. 4609 directs the SBA

67 These can be natural or human-caused.
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administrator to establish a Southeast Hurricanes Small Business Disaster Relief Program under
which the SBA administrator may waive interest rates for up to three years. The bill would also
allow the SBA administrator to waive $15,000 in interest. To be eligible for waivers, small
businesses must have resumed operations in a declared disaster area during the period
• beginning on September 1, 2005, and ending on October 1, 2006, for loans
relating to Hurricanes Katrina or Rita in 2005; or
• beginning on September 1, 2008, and ending on January 1, 2009, for loans
relating to Hurricanes Gustav or Ike in 2008.
Concluding Observations
Supporters of the SBA Disaster Loan Program might argue that the criticisms aimed at SBA’s
handling of its disaster loan processing in 2005 and 2006 have been addressed. They contend that
loan processing times have been reduced, interagency coordination has improved, and new
mechanisms such as bridge loans have improved the program. On the other hand, some critics
might be troubled by SBA’s perceived slow progress in implementing some of the requirements
set forth in the Small Business Disaster Response and Loan Improvements Act of 2008 (P.L. 110-
246). While SBA’s response to Hurricane Ike has been generally regarded as competent, some
might argue that if the requirements in the act had been implemented, such as compliance with
reporting, the agency’s response could have been more successful. In addition, comparing SBA’s
performance after Hurricane Ike with its performance after Hurricane Katrina might not be a good
indicator of improved disaster response because of the more devastating economic damage
inflicted by Hurricane Katrina.

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Appendix A. Why Does SBA Instead of FEMA Issue
Disaster Loans?

In 1978, President Jimmy Carter signed Executive Order 12127. The order merged many of the
disaster-related responsibilities of separate federal agencies into the Federal Emergency
Management Agency (FEMA). During FEMA’s formation, it was determined that SBA would
continue to provide disaster loans through the Disaster Loan Program rather than transfer that
function to FEMA. At the 1978 hearing before a Subcommittee of the Committee on Government
Operations, Chairman Jack Brooks questioned the rationale for keeping the loan program outside
of FEMA.68 According to James T. McIntyre, Director, Office of Management and Budget
(OMB), the rationale was as follows:
[O]ne of the fundamental principles underlying this proposal is that whenever possible
emergency responsibilities should be an extension of the regular missions of federal
agencies. I believe the Congress also subscribed to this principle in considering disaster
legislation in the past. The Disaster Relief Act of 1974 provides for the direction and
coordination, in disaster situations, of agencies which have programs which can be applied to
meeting disaster needs. It does not provide that the coordinating agency should exercise
direct operational control.... [I]f the programs ... were incorporated in the new agency we
would be required to create duplicate sets of skills and resources.... [S]ince the Small
Business Administration administers loan programs other than those just for disaster victims,
both the SBA and the new agency [FEMA] would have to maintain separate staffs of loan
officers and portfolio managers if the disaster loan function were transferred to the new
Agency.... [O]ne of our basic purposes for reorganization ... would be thwarted if we were to
have to maintain a duplicate staff function in two or more agencies.
McIntyre added, “we believe we have achieved a balance in this new agency [FEMA] between
operational activities and planning and coordination functions.” He further stated that “we can
provide better service to the disaster victims if oversight of disaster response and recovery
operations is vested in an agency which can adopt a much broader prospective than would be
possible if this agency [FEMA] had operational responsibilities as well.”
Additionally, a clause in the Stafford Act that prohibits recipients of disaster aid from receiving
similar types of aid from other federal sources is often cited as a rationale for keeping the entities
distinct.69 Section 312 of the act states that
The President, in consultation with the head of each Federal agency administering any
program providing financial assistance to persons, business concerns, or other entities
suffering losses as a result of a major disaster or emergency, shall assure that no such person,
business concern, or other entity will receive such assistance with respect to any part of such
loss as to which he has received financial assistance under any other program or from
insurance or any other source.70

68 U.S. Congress, House Subcommittee on Legislation and National Security, Committee on Government Operations,
Reorganization Plan No. 3 of 1978 (Federal Emergency Management Agency), hearing, 95th Cong., 2nd sess., June 26
and 29, 1978, p. 13.
69 P.L. 93-288, 42 U.S.C. § 5121 et seq. For further analysis of the Stafford Act, see CRS Report RL33053, Federal
Stafford Act Disaster Assistance: Presidential Declarations, Eligible Activities, and Funding
, by Keith Bea.
70 P.L. 93-288, 15 U.S.C. § 5155(a).
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Appendix B. SBA Disaster Loan Approvals for
Applicants in Gulf Coast States

The following figures are provided to help frame discussions concerning SBA Loan Program
activity in the Gulf Coast in response to the 2005 and 2008 hurricane seasons.
Figure B-1. Number of Approved Applications for Home Disaster Loans,
by Gulf Coast State
As of July 2009

Source: Data provided by SBA and available from the CRS author upon request.
Notes: Numbers shown in this figure refer to approved disaster loans. Not al approved loans are accepted by
disaster victims and businesses. Therefore, actual loan acceptance and accepted numbers of loans may be smaller
than the numbers shown here.
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Figure B-2. Number of Approved Applications for Business Disaster Loans,
by Gulf Coast State
As of July 2009

Source: Data provided by SBA and available from the CRS author upon request.
Notes: See notes for Figure B-1.
Figure B-3. Number of Approved Applications for Economic Injury Disaster Loans,
by Gulf Coast State
As of July 2009

Source: Data provided by SBA and available from the CRS author upon request.
Notes: See notes for Figure B-1.
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Figure B-4. SBA Home Disaster Loans, by Gulf Coast State
Loan amounts by state for the Gulf Coast as of July 2009; dollars in thousands

Source: Data provided by SBA and available from the CRS author upon request.
Notes: Amounts shown in this figure refer to approved disaster loans. Not all approved loans are accepted by
disaster victims and businesses. Therefore, actual loan acceptance and accepted amounts may be smaller than the
amounts shown here.
Figure B-5. SBA Business Disaster Loans, by Gulf Coast State
Loan amounts for the Gulf Coast as of July 2009; dollars in thousands

Source: Data provided by SBA and available from the CRS author upon request.
Notes: See notes for Figure B-4.
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The SBA Disaster Loan Program: Overview and Possible Issues for Congress

Figure B-6. SBA Economic Injury Disaster Loans, by Gulf Coast State
Loan amounts for the Gulf Coast as of July 2009; dollars in thousands

Source: Data provided by SBA and available from the CRS author upon request.
Notes: See notes for Figure B-4.
Figure B-7. National Comparison of SBA Disaster Loans to Private Insurance
Payouts: 2000 to 2009
As of November 2009; constant dollars

Source: Data provided by SBA and available from the CRS author upon request. Insurance data are derived
from Property Claims Service/ISO, Insurance Information Institute
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Notes: SBA amounts shown in this figure refer to approved disaster loans. Not all approved loans are accepted
by disaster victims and businesses. Therefore, actual loan acceptance and amounts may be smaller than the
amounts shown here.
Acknowledgments
The author wishes to acknowledge the assistance of Margaret Devine and Timothy Healey,
interns for the Government and Finance Division; Robert Dilger, Senior Specialist, Government
and Finance Division; and Jared Nagel, Reference Assistant, Knowledge Services Group,
Government and Finance Division, for contributing information for this report.

Author Contact Information

Bruce R. Lindsay

Analyst in Emergency Management Policy
blindsay@crs.loc.gov, 7-3752



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