Small Business Administration: Physical Disaster Loan Performance Before and After Changes in Legal Collateral Requirements


Why GAO did this study

SBA helps most types of businesses regardless of their size and others affected by natural and other disasters through its disaster loans program.

The Small Businesses Post-Disaster Reconstruction Act included a provision for GAO to review the performance of the SBA’s physical disaster loan portfolio and compare the performance of loans made prior to changes in collateral requirements in due to the RISE After Disaster Act of 2015 to loans made after the changes. were in effect.

To perform this work, GAO obtained and analyzed loan data from SBA claims from January 1, 2000 to September 30, 2020; reviewed relevant federal laws and regulations; and interviewed SBA officials.

What GAO found

In the event of a disaster, the Small Business Administration (SBA) Disaster Loan Program provides direct assistance in the form of low-interest loans. Physical disaster loans can be used to rebuild and replace damaged uninsured or underinsured property in a declared disaster area, helping homeowners, tenants, businesses and nonprofits. But for an applicant to be eligible for physical disaster loans from the SBA, the property damage must occur in a federally declared disaster area. The president may issue a declaration of major disaster in response to a request from the governor of a state or territory or the chief executive of a tribal government. For an event that does not reach the level of a presidential disaster declaration, the SBA administrator may issue an agency disaster declaration in response to a timely request from a state governor. The Recovery Improvements for Small Entities (RISE) After Disaster Act of 2015 temporarily changed the collateral requirements for loans approved under SBA disaster declarations. Specifically, the law temporarily increased the limit on unsecured loans from $ 14,000 to $ 25,000. The increase expires on November 25, 2022, at which time, in the absence of a further review of the law, the amount will drop to $ 14,000.

The GAO reviewed the $ 855 million in approved SBA physical disaster loans made under the SBA disaster declarations from January 1, 2000 to September 30, 2020. The GAO found that default and write-offs were higher for loans approved before the guarantee changes than the RISE After Disaster Act of 2015 compared to loans approved after the changes came into effect. However, as loans made after the RISE After Disaster Act of 2015 have more time to mature, their default and write-off rates may increase. Loans made before the RISE After Disaster Act of 2015 had about 5 to 20 years to mature, while loans made after were all less than 5 years old. GAO’s analysis did not isolate the contribution of changes in guarantees made to the difference in loan performance from other contributing factors, such as the state of the economy or changes in the loan’s lending practices. SBA.

To minimize the effect of the difference in the performance time of the two groups of loans, GAO evaluated performance for the first 4 years following the loan disbursement of subsets of loans made approximately 5 years before and after the law. RISE After Disaster Act of 2015. GAO found that for these loan subsets, the default and write-off rates varied by less than a percentage point for each of the years. In addition, the GAO compared the performance of secured loans to the performance of unsecured loans and found that secured loans did not necessarily perform better than unsecured ones.

For more information, contact Cheryl Clark at (202) 512-9377 or


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