7 This table includes the most common types of disaster declarations. Others exist, including Secretary of Commerce Declarations. SBA also offers a Military Reservist Economic Injury Disaster Loan, intended to provide working capital assistance to small businesses that experience, or will experience, financial difficulties as a result of an essential employee being called up to active duty in his or her role as a Reservist. The program is small. Agency data as of March 2007 show that, since its inception in 2001, SBA has approved 271 loans, for an average of $91,000 each. SBA approved 24 loans in FY 2006. Only a few disasters have been declared under this program; they are not included in the table. However, these loans are included in the data on loan activity in this report.
8 http://sba.gov/services/disastereassistance/basics/recentdisaster/index/html (accessed April 5, 2007).
programs provide loan guarantees for businesses; SBA does not directly fund the loans. The program is also unique in that it is the only SBA program not limited to small businesses.
Providing disaster assistance in the form of loans, instead of grants, eliminates an incentive for property owners to underinsure against risk. Loans require the owners of the disaster-damaged properties to pay back the assistance. The primary costs to taxpayers result from loan defaults and interest subsidies. The interest subsidy is the difference between the interest rate SBA offers (typically 4 percent or less) and the Treasury borrowing rate.
Loans Are Not Limited to Small Businesses SBA offers two major types of disaster loans:
• Physical Disaster Loans, which finance the permanent rebuilding or replacement of uninsured, underinsured or uncompensated damaged property. These loans are available to home owners and renters, and to businesses of all sizes, as well as to non-profit organizations.
• Economic Injury Disaster Loans, which are available to small businesses, provide working capital to cover operating expenses until the businesses can return to normal operation.
Historically, about 80 percent of SBA disaster loans go to homeowners and renters.
Table 2-2. Maximum Disaster Loan Amounts
SBA Disaster Loans Maximum Amounts Physical Disaster Loans - Personal Property $40,000 Physical Disaster Loans - Primary Home $200,000 Physical Disaster Loans - Business $1.5 million
Economic Injury Loans $1.5 million
Note: The aggregate amount cannot exceed $1.5 million; there are exceptions to the $1.5 million limit for businesses that meet SBA’s Major Source of Employment (MSE) criteria.
In Presidential disaster declarations, homeowners and renters with disaster losses who do not qualify for the SBA disaster loan program are referred to FEMA’s Individual and Family Grant Program for possible grant assistance. FEMA works to meet immediate health and safety needs during the initial phase of disaster recovery while SBA works to support the long term recovery of the area.
SBA assumes risks that private lenders are unwilling to take by applying more lenient credit standards. Even so, SBA adheres to fundamental credit practices, and determines that an applicant is likely to repay the loan before the agency lends the funds. To receive SBA disaster loans, applicants must also meet certain “character” requirements, such as compliance with child support obligations and repayment of other federal debt (e.g. student loans).
Many program requirements are set legislatively. For example, Congress has defined what constitutes a disaster, set maximum interest rates and repayment periods for the loans, set maximum amounts for the loans, and required that subsidized loans go only to those who could not qualify for credit elsewhere. SBA policies guide other aspects of the program, such as defining what constitutes evidence of the borrower’s ability to repay the loan and requiring collateral to secure some loans.
The Office of Disaster Assistance (ODA)
As described above, ODA was created in 1981 to improve SBA’s delivery of the disaster loan program. Organizationally, the Associate Administrator of ODA reports directly to the Administrator of SBA. Likewise, ODA’s four field offices,9 as well as the Administrative Support Center and the DCMS Operations Center in Herndon, Virginia, report directly to the ODA Administrator; SBA regional and district offices are not directly involved in the disaster loan program. ODA is largely a self-contained entity within SBA.
The Disaster Assistance Program also has its own appropriation. The size of ODA’s workload varies with the size and number of yearly declared disasters. To meet this fluctuating demand, much of ODA’s funding is provided through supplemental appropriations after major disasters are declared, rather than through the regular congressional budget process. The $1.4 billion appropriated in FY 2005, for example, included $930 million in supplemental appropriations.
Figure 2-1 demonstrates the fluctuations in appropriations in recent years.
Figure 2-1. Disaster Loan Appropriations, FY 1002-200610
0 200 400 600 800 1000 1200 1400 1600 1800
FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006
Dollars in Millions
appropriated
Source: SBA/ODA, Office of the Associate Administrator (February 2007) and SBA FY 2008 Presidential Budget Request and background documents
9 Until recently ODA had four Disaster Area Offices. As discussed below, in 2005 the functions and names of those offices were changed.
10 The increase in FY 2005 was largely in response to four hurricanes that hit Florida in 2004. FY 2006 appropriations include over $700 million in transfers from the Department of Homeland Security in addition to supplemental appropriations.
Along with ODA’s funding, staffing for the Disaster Assistance Program fluctuates, sometimes dramatically. The program has received special hiring authority from the Office of Personnel Management; staffing of the program differs significantly from that of the agency at large. ODA day-to-day staffing consists of a few—in April 2007 there were 21—permanent career federal personnel and a much larger number—historically around 350—of “cadre” staff. The cadre staff are career civil servants, hired under special hiring authority as “on-call seasonal” workers.
Though most work year-round, under SBA policy they are guaranteed only six months of work each year. Officials said there have only been a few times when any cadre staff have been put in non-pay status due to lack of work.
When workload exceeds the capabilities of its permanent and cadre staff, SBA hires temporary workers. As shown in Table 2-3 below, the number of workers, especially temporary workers, varies significantly, depending on the level of disaster response needed. The “on-board’
numbers may mask the total number of hires. For example, though the peak number of temporary employees in 2006 was 3,994, officials estimated that they hired about 7,000 employees who worked for varying lengths of time.
In the past, SBA has also maintained a Disaster Reserve Corps of employees to be deployed on short notice in disasters. Corps members are recruited and hired by the agency and maintained in an uncompensated status until called up. In recent years Corps membership declined significantly, to an estimated 25 members in 2004. As shown in the table, and discussed later in this chapter, the agency has increased the size of the reserve significantly in the last year.
Table 2-3. Changes in Disaster Loan Staffing, Calendar Years 2002-2007
2002 2003 2004 2005 2006 2007
Source: SBA/ODA, Office of Disaster Personnel (May 2000)11
An important difference between the rest of SBA and ODA is that, while most employees of SBA are members of a bargaining unit, ODA personnel are not. ODA officials believe having a non-unionized staff allows much greater flexibility to meet emergency demands; they see union provisions as limiting the extent to which staff in other parts of SBA can support ODA in meeting its staffing and other resource needs during post-disaster mobilizations. For example,
11 Data are maintained as of the end of each month; slightly higher or lower numbers could have occurred within
Outreach and Intake
Closing and Disbursement
Servicing &
Collections Underwriting
Loss Verification
ODA staff often must deploy to the disaster location and work long hours—actions not stipulated in job descriptions for bargaining unit staff—to meet the urgent needs of applicants.
HOW THE PROCESS WORKS