GAO Finds SBA Halfway There on Improving Disaster Loan Program
The GAO has just released a report on additional steps the SBA should have taken by now to reform its disaster loan program and improve the application process for future disasters. Of the 26 requirements for improvement, the SBA has met 13, partially addressed eight and did not take action on five, which are not applicable at this time because they are discretionary or establish the need for additional appropriations, according to the GAO.
Formed in 1953, the SBA's disaster loan program is the primary federal program for funding long-term recovery assistance through low-interest loans to homeowners, renters, businesses of all sizes and nonprofit organizations. Since its formation, the program has approved more than $46 billion in disaster loans.
Among the recommendations the SBA has met are having economic disaster injury loans available to nonprofits, increasing the amount of disaster loans from $10,000 to $14,000 without requiring collateral and establishing a second facility to process disaster loans in case the primary facility is unavailable, the GAO said. The requirements are in line with the passage of the Small Business Disaster Response and Loan Improvements Act of 2008. The GAO was asked to determine the extent to which SBA addressed the items within the legislation and how the agency's response to major disasters in 2008 aligned with components of its June 2007 disaster recovery plan.
Other SBA improvements include issuing a disaster recovery plan, adopting an electronic loan application, upgrading the system capacity of its disaster credit management system, improving employee training and expanding its disaster reserve staff, the GAO said.
However, the SBA has not addressed specifically how it would market its disaster loan program in different areas of the country nor adopted likely scenarios for certain regions prone to disasters, according to the GAO report.
"Although SBA believes that it has addressed the requirement for marketing and outreach in its DRP, the 2007 plan does not provide any regional perspective, nor has the agency updated this plan since 2007. We consistently heard from regional entities, such as [small business development centers] and emergency management groups, about the need for more upfront information on SBA's Disaster Loan Program and their expected roles and responsibilities in disaster response efforts," the GAO said.
By taking such actions, SBA could leverage the efforts and capacity of SBDCs, as well as state and local emergency management agencies, and ensure that it and they will be better prepared for future events, especially in disaster-prone areas, the GAO suggested.
While the SBA has taken some steps toward implementing the provisions in the 2008 act, the GAO said the agency still needs to do more to completely address eight provisions. The SBA said it has not taken action because it would require new regulations to change or implement new programs such as the immediate and expedited disaster assistance programs.
The GAO said the SBA has had "limited success" in meeting deadlines for nine provisions. As of June, the agency has not issued an annual report on disaster assistance, which was due by November 2008. Though the SBA is required to provide annual updates to its comprehensive DRP, SBA has not yet updated its June 2007 plan. SBA officials said they have missed some deadlines because of the need for more time to issue new regulations and create new programs and then pilot them before making final decisions about implementation, according to the report.
"SBA's not providing such reports to Congress, as required, can lead to a lack of transparency about the agency's disaster loan program and its progress and capacity to reform the program, as well as its ability to adequately prepare for and respond to disasters," the GAO said.
The SBA took action following the May 2008 floods in 85 counties in Iowa and Hurricane Ike last September in Texas, the GAO acknowledged. SBA and SBDC officials, state and local representatives, private-entity officials and business owners in both states told the GAO that in the days immediately following the disasters, the agency's Office of Disaster Assistance staff reported to the affected areas and began providing needed relief. However, in a SBA 2008 customer satisfaction survey, respondents said they were concerned about the amount of paperwork required to complete the disaster loan application and the timeliness of loan disbursements. The respondents suggested eliminating the requirement of providing copies of IRS tax records, providing partial disbursements earlier in the process and using bridge loans to help ensure disaster victims receive timely assistance.
In response to the GAO report, the SBA said it generally agreed with the recommendations. Going forward, it plans to expand its outreach efforts to ensure the public in all regions of the country is more aware of SBA disaster assistance programs before a disaster strikes. The SBA is also planning to submit both the required annual report, and the 2009 revision to its DRP to Congress by Nov. 15. Additionally, SBA officials said the agency has plans to develop an implementation plan for completion of the remaining provisions.