The Senate Committee on Small Business and Entrepreneurship oversees the Small Business Administration’s (SBA) Disaster Loan Program. Specifically, the SBA provides financial assistance through this program to help homeowners, renters, non-profit organizations, and businesses of all sizes recover from disasters. In 2005 and 2006, the SBA faced unprecedented demands for its disaster loan assistance services in the wake of Hurricanes Katrina, Rita, and Wilma. The inefficiencies of the Disaster Loan Program received national attention and led to Congressional action by the Senate Committee on Small Business and Entrepreneurship.
Following the Gulf Coast Hurricanes, and after more than two and a half years of bipartisan efforts to improve assistance to small businesses and individuals devastated by this disaster, members of the Senate Committee on Small Business and Entrepreneurship were able to pass into law necessary reforms of the Disaster Loan Program. The Committee had worked on the legislation since September 2005 when the aftermath of Hurricane Katrina revealed the need to enact reforms that would ensure that disaster loans are processed and received by victims more quickly.
Below is a summary of Disaster Loan Program reform provisions in the Food, Conservation and Energy Act of 2008, which was enacted into law on May 22, 2008:
Creates Bridge Loan Programs
The bill creates two programs for the private sector to administer small-dollar, short-term disaster loans for businesses. In a catastrophic disaster, the SBA can authorize private lenders to make 180 day loans of up to $150,000 with interest not more than 1 percent over the prime rate, to businesses that are otherwise eligible for a disaster loan. In all disasters, private lenders can make loans of up to $25,000 and receive an SBA guaranty within 36 hours (for up to 85 percent of the loan amount). Both of these loans will be rolled into a standard SBA disaster loan once it has been made. These bridge loans will help provide financial assistance to businesses while they await processing or disbursement of a conventional SBA disaster loan or insurance payment.
Utilizes the Private Sector
This bill creates a program to allow private lenders to make disaster loans after a catastrophic disaster. These loans will carry the same terms and benefits as conventional SBA disaster loans. All lenders will be eligible to make loans to small businesses, but only lenders who are preferred lenders in the 7(a) program could make loans to individuals. The bill also provides the SBA with authority to pay a fee to private lenders to process loans during times when the SBA's processing capabilities are overwhelmed in order to prevent application backlogs and ensure timely approval and disbursement of loan proceeds.
Expands Disaster Assistance to Affected Businesses Nationwide
The bill authorizes the SBA to make economic injury disaster loans to businesses located outside the geographic area of a catastrophic disaster, if they suffer economic injury as a direct result of the disaster. The businesses must have suffered identifiable economic injury as a direct result of the disaster, and this program will be available in periods for which the Administrator has declared eligibility for additional disaster assistance.
Raises Loan Amounts and Increases Deferment Periods
The bill raises the maximum amount of an SBA disaster loan from $1,500,000 to $2,000,000, and raises the maximum amount of unsecured disaster loans from $10,000 to $14,000. It also gives the SBA Administrator the authority to make new disaster loans and refinance existing loans from Hurricanes Katrina and Rita with a four year deferment period. In addition, the bill allows non-profits located in the disaster area to apply for economic injury loans.
Enhances Disaster Preparedness, Communication, and Coordination
The bill adds several requirements to improve the SBA's coordination with FEMA, such as ones that direct the SBA to conduct biennial disaster simulation exercises, create a comprehensive disaster response plan for various disaster scenarios, and improve its communication with the public when disaster assistance is made available. The bill also creates a new position for a high-level disaster planning expert who will operate independently from the Office of Disaster Assistance and will oversee the disaster planning and readiness of the agency. Finally, the bill will ensure that the SBA maintains adequate loan processing staff and reserve cadre.