Of the approximately  24,000 September 11 disaster loan applications, SBA approved about  11,000, totaling $1.1 billion. The SBA Disaster Loan Program’s Policies and Procedures Are Consistent with the Law and the Program’s Overall Mission

SBA’s policies and procedures for providing EIDLs are consistent with the  Small Business Act. The act addresses some loan terms, such as length  of maturity, but it does not specify underwriting criteria for SBA to follow. However, SBA’s regulations do contain underwriting requirements such as  assessing an applicant’s ability to repay the loan, credit history, and the  availability of collateral, as well as other requirements. The Small Business Act Provides Little Specific Guidance on How SBA Should Manage Its Disaster Loan Program, Particularly in Providing EIDLs

The law provides for SBA to make loans to small business concerns that  have suffered a substantial economic injury as a result of a covered  disaster, provided that SBA finds that an applicant is not able to obtain  credit elsewhere. SBA’s Underwriting Criteria Followed Program Guidelines and Best Practices and Were Similar to Those of Nonprofits Offering Disaster Loans

SBA’s underwriting policies and criteria for September 11 EIDLs generally  followed established guidelines, even with the exceptions that were made  for this disaster, and were similar to those of selected nonprofits in New  York City. Small businesses that were eligible to apply for SBA loans were  expected to meet standard requirements for documentation,  creditworthiness, repayment ability, collateral, and appropriate character,  as determined by SBA. As we  reported previously, modifications to SBA’s Disaster Loan Program were  made to address the unusual circumstances surrounding the September 11  disaster and to respond to the concerns of affected small businesses. However, the changes that were made were to eligibility and terms, not to  loan underwriting criteria. SBA’s Program Policies Were Generally Consistent with Good Lending Practices

SBA’s guidelines for its Disaster Loan Program generally coincide with best  practices published by lending industry experts and guidance issued by  federal regulators. Nonprofit Lenders in New York City Had Similar Requirements for Disaster Loans

Three nonprofits in New York City that made September 11 disaster loans  had requirements similar to SBA’s, but the programs had some additional  flexibility to address the needs of their small business constituents (fig. Our review of a small random sample of approved loans  also indicated that SBA followed its policies and procedures in granting  loans. SBA Followed Its Procedures for Processing Declined and Withdrawn Loan Applications

In our review of declined and withdrawn loan files, we found that SBA  followed its policies and procedures for conducting supervisory reviews of  loan decisions and notifying applicants of the decisions and that the agency  generally processed applications in a timely manner. 3). To determine whether SBA correctly applied its policies in the disposition  of September 11 EIDL applications, we reviewed a representative random  sample of declined and withdrawn September 11 EIDL application files  across all disaster area offices, and a small sample of loan application files  for approved September 11 EIDLs.
Why GAO Did This Study

The Small Business Administration (SBA) played a key role in assisting small businesses affected by the September 11, 2001 terrorist attacks by providing over $1 billion in disaster loans to businesses that sustained physical damage or economic injury. Small businesses in the immediate areas of the attacks and others nationwide that suffered related economic injury were eligible to apply for disaster loans. SBA declined or withdrew about half of these loan applications. SBA's disaster loans are direct federal government loans provided at a subsidized interest rate. In response to concerns that more small businesses impacted by September 11 could have benefited from SBA's disaster loans, GAO conducted a review of its Disaster Loan Program. Specifically, GAO addressed the following questions: (1) Are the disaster program policies consistent with the law and the overall mission of SBA's Disaster Loan Program? (2) What were SBA's underwriting policies and criteria for September 11 Economic Injury Disaster Loans (EIDL) and how did they compare with those applied by nonprofit lenders that were active in New York City after September 11? (3) Did SBA correctly apply its policies and procedures in its disposition of September 11 EIDLs?

What GAO Found

SBA's policies and procedures for providing EIDLs are consistent with the Small Business Act: applicants must have suffered substantial economic injury as a result of a declared disaster, and SBA must determine that they are not able to obtain credit elsewhere. The act addresses some loan terms, such as length of maturity, but it does not specify underwriting criteria for SBA to follow. However, SBA's regulations contain underwriting criteria such as assessing an applicant's ability to repay the loan and obtaining collateral. SBA's underwriting requirements for September 11 EIDLs generally followed program guidelines and were similar to those of selected nonprofit organizations in New York City. Small businesses that were eligible to apply for SBA assistance were expected to meet standard requirements for documentation, creditworthiness, repayment ability, collateral, and character. These requirements are generally consistent with best practices published by lending industry experts and guidance issued by federal regulators. Changes made to address the unusual circumstances of the September 11 disaster were to eligibility and loan terms and not to loan underwriting criteria. The three nonprofit organizations in New York City that made September 11 disaster loans had requirements similar to SBA, but the nonprofits had some additional flexibility to address the needs of their small business constituents. GAO found that SBA followed its policies and procedures in making decisions for September 11 EIDLs. All of the files in our random, representative sample of declined or withdrawn applications contained documentation and analysis to support the SBA's determination. GAO's review of this sample also indicated that SBA followed its procedures for processing applications--such as supervisory review and notifying applicants of its decision and their right to have the application reconsidered. GAO's review of a small sample of approved loans also indicated that SBA followed its policies and procedures.