Search Penny Hill Press

Wednesday, September 14, 2011

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

Bruce R. Lindsay
Analyst in American National Government

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.

Date of Report: September 2, 2011
Number of Pages: 31
Order Number: R41309
Price: $29.95

Follow us on TWITTER at or #CRSreports

Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.