Physical disaster loans are for permanent rebuilding and  replacement of uninsured or underinsured disaster-damaged property. Economic injury disaster loans provide small businesses that are  not able to obtain credit elsewhere with necessary working capital  until normal operations resume after a disaster declaration. Immediate Disaster Assistance Program (IDAP) would provide  small businesses with guaranteed bridge loans of up to $25,000 from  private-sector lenders, with an SBA decision within 36 hours of a  lender’s application on behalf of a borrower. Timeliness of Disaster Assistance and Challenges to Address

The following section discusses the extent to which SBA met goals for  timely processing of business loan applications and factors affecting  timeliness; changes SBA made to address processing issues; and  challenges that business organizations identified to timely receipt of  assistance. SBA Did Not Meet Its Timeliness Goal for Application Processing and Backlog Grew Rapidly

Following Hurricane Sandy, SBA did not meet its goal to process  business loan applications within 21 days from receipt to loan decision. SBA took an average of 45 days for physical disaster loan applications  and 38 days for economic injury applications. At the time of our report, SBA had not updated its key disaster planning  documents—the Disaster Preparedness and Recovery Plan and the  Disaster Playbook—to adjust for the effects that a Sandy-like surge in  early applications could have on staffing, resources, and forecasting  models for future disasters. Federal internal control standards state that  management should identify risk (with methods that can include  forecasting and strategic planning) and then analyze the risks for their  possible effect. Without taking its experience with early  application submissions after Hurricane Sandy into account, SBA risked  being unprepared for such a situation in future disaster responses,  potentially resulting in delays in disbursing loan funds to disaster victims. We therefore recommended that SBA revise its disaster planning  documents to anticipate the potential impact of early application  submissions on staffing and resources for future disasters, as well as the  risk this impact might pose for timely disaster response. In response to our recommendation, SBA has updated its Disaster  Playbook. However, as we stated in  2014, because SBA has not received a large volume of applications since  Hurricane Sandy, it is too early to determine whether these changes will  improve the timeliness of SBA’s response for future disasters similar in  magnitude to Sandy. Loan Approval, Withdrawal, and Cancellation Rates in Selected Disasters

As explained previously, for our 2014 report we compared SBA’s  approval, withdrawal, and cancellation rates for business loans after  selected disasters. In comparison with the other disasters, the approval  rate after Sandy was not consistently higher or lower, but withdrawal and  cancellation rates were consistently higher. The approval rate for business loan applications for  Hurricane Sandy (42 percent) was lower than for Hurricanes Katrina, Rita,  and Wilma, higher than for Hurricane Ike, and comparable to the rate for  Hurricane Irene. The primary reasons for which SBA declined business loan applications  after each of the disasters remained the same: lack of repayment ability  and unsatisfactory credit history. SBA Has Not Implemented Three Guaranteed Disaster Loan Programs Required by Law

In 2014 we reported that 6 years after Congress passed the Small  Business Disaster Response and Loan Improvements Act of 2008, SBA  had not piloted or implemented three guaranteed disaster loan programs,  which therefore had not been available after Hurricane Sandy. Second, SBA told us that it received feedback from lenders on challenges  that could discourage lenders from participating in the program, but  documentation of the feedback was limited. Congressional  action would be required to revise statutory requirements, but SBA  officials said they had not discussed the lender feedback with Congress. As a result of not documenting, analyzing, or communicating lender  feedback, SBA might have lacked reliable information to guide its own  actions and to share with Congress about what requirements should be  revised to encourage lender participation. Therefore, in  September 2014, we recommended that SBA conduct a formal  documented evaluation of lenders’ feedback to inform both itself and  Congress about implementation challenges and about statutory changes  that might be necessary to encourage lenders’ participation in IDAP, and  then report to Congress on the challenges SBA faced in implementing  IDAP and on statutory changes that might be necessary to facilitate  implementation. While SBA thus has taken one step to solicit and document  lender feedback, it has not adopted a plan for the steps the agency will  take to implement IDAP (and by implication, the other two loan programs)  or to reach a determination on whether IDAP or the other loan programs  should be implemented.
Why GAO Did This Study

With an estimated $67 billion in damage, Hurricane Sandy (October 2012) was the costliest Atlantic storm since Katrina in 2005. SBA administers the Disaster Loan Program, which provides physical disaster loans (to rebuild or replace damaged property) and economic injury loans (for working capital until normal operations resume) to help businesses and homeowners recover from disasters.
This testimony discusses (1) the timeliness of SBA's disaster loans, (2) loan approval, withdrawal, and cancellation rates for selected previous disasters; and (3) the extent to which SBA implemented loan programs mandated by the Small Business Disaster Response and Loan Improvements Act of 2008. This testimony is based on GAO's September 2014 report ( GAO-14-760 ) on SBA assistance to small businesses after Sandy. For that report, GAO analyzed SBA data on application processing, reviewed documentation related to SBA's planning, reviewed relevant legislation and regulations, and interviewed SBA officials. GAO provides updates on steps SBA has taken to implement GAO's recommendations.

What GAO Found

Following Hurricane Sandy, the Small Business Administration (SBA) did not meet its timeliness goal (21 days) for processing business loan applications. From receipt to loan decision, SBA averaged 45 days to process physical disaster loans and 38 days for economic injury loans. SBA did not expect early receipt of a high volume of loan applications, and delayed increasing staffing—which in turn increased processing times. As of September 2014, SBA had not revised its disaster planning documents to reflect the effects that application volume and timing could have on staffing, resources, and forecasting models for future disasters. Federal internal control standards state that management should identify risks and take action to manage them. Without taking its post-Sandy experience with application submissions into account in its disaster planning documents and analyzing the potential risks posed for timely response, SBA might be unprepared for similar situations in future disasters, which could delay getting loan funds to disaster victims. In June 2015, SBA provided GAO with an updated version of one disaster planning document—the Disaster Playbook—which includes discussion of early application volume and references to updated staffing models. GAO's review of these changes is ongoing.
In comparison with the five disasters that generated the most SBA disaster loan applications since 2005, the loan approval rate after Sandy was not consistently higher or lower, but the application withdrawal and loan cancellation rates (32 percent and 38 percent, respectively) were consistently higher than other disasters. SBA approved 42 percent of business loan applications after Sandy, a rate lower than for Katrina, Rita, and Wilma, higher than for Ike, and comparable with that for Irene. For Hurricane Sandy and for previous disasters, SBA primarily declined business loan applications because of applicants' lack of repayment ability and credit history.
As of June 2015, SBA had not implemented the guaranteed disaster loan programs Congress mandated in 2008, including the Immediate Disaster Assistance Program (IDAP)—a bridge loan program in which private-sector lenders would provide disaster victims with up to $25,000 and an SBA decision within 36 hours of a lender's application on behalf of a borrower. In 2014, SBA officials told GAO they were trying to implement IDAP but had received some feedback from lenders that some program requirements—such as a statutory minimum 10-year loan term under certain circumstances—might discourage lender participation. SBA had not conducted a formal documented evaluation of lender feedback to establish what implementation challenges the agency might face and to determine what, if any, statutory changes Congress could consider. Without an appropriately documented evaluation of lender feedback, SBA might not have reliable information with which to inform its own actions and its reporting to Congress about challenges with implementing the programs. In June 2015, SBA provided GAO with documentation of additional outreach performed in October 2014, where lenders provided specific feedback regarding current statutory requirements and proposed program requirements. SBA has yet to adopt a plan for how and whether it will proceed with IDAP implementation or document the challenges it would face in implementing the program. Therefore, SBA has not reported to Congress on these issues.

What GAO Recommends

In September 2014, GAO recommended that SBA revise its disaster planning documents, conduct a formal documented evaluation of lenders' feedback on IDAP, and report to Congress on challenges to implementing the program. SBA has since taken steps to revise its planning documents and received and documented some lender feedback, but has not reported to Congress.