59–010 

Calendar No. 139 

110TH CONGRESS REPORT " ! SENATE 1st Session 110–64 

SMALL BUSINESS DISASTER RESPONSE AND LOAN 

IMPROVEMENTS ACT OF 2007 

MAY 7, 2007.—Ordered to be printed 

Mr. KERRY, from the Committee on Small Business and 

Entrepreneurship, submitted the following 

R E P O R T 

[To accompany S. 163] 

The Committee on Small Business and Entrepreneurship, to 

which was referred the bill (S. 163) to improve the disaster loan 

program of the Small Business Administration, and for other purposes, having considered the same, reports favorably thereon with 

an amendment and recommends that the bill (as amended) do pass. 

I. INTRODUCTION

The Gulf Coast hurricanes of 2005 exposed many deficiencies 

within the federal system for disaster response. The Small Business Administration’s (SBA) disaster loan program, administered 

by the SBA Office of Disaster Assistance, is one of the primary government resources available to help homeowners and business owners rebuild their lives after a disaster strikes. 

By all accounts, the SBA failed in its mission to respond quickly 

and effectively to victims’ needs in the weeks and months following 

the hurricanes. In some instances, disaster victims waited three 

months or more for loans to be processed. Although SBA Administrator Steven Preston has made significant improvements to disaster loan processes, there are improvements that require legislative action to ensure that the SBA is prepared to handle future 

large-scale disasters. Many of the important changes made by Administrator Preston need to be written into law so this vital disaster response program does not default to administrative discretion in the future. In the 20 months following Hurricane Katrina, 

the Committee has held hearings and has offered numerous legislative proposals aimed at providing legislative fixes. 


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Immediately after Hurricane Katrina, Senators Kerry and 

Landrieu offered an amendment to the FY 2006 Commerce, Justice 

and Science appropriations bill to address the needs of Gulf Region 

small businesses and homeowners. This amendment was adapted 

and a subsequent bipartisan amendment was offered by then-Chair 

Snowe which passed the Senate by a vote of 96–0. Although the 

Senate unanimously supported the amendment, it was stripped out 

of the bill in Conference. Consequently, on September 19, 2005, 

Senator Snowe introduced a stand-alone bill, the ‘‘Small Business, 

Homeowners, and Renters Disaster Relief Act of 2005’’ (S. 1724), 

which was identical to the amendment. 

On September 22, 2005, the Committee held the first of two 

hearings on the Gulf Coast hurricanes, entitled ‘‘The Impact of 

Hurricane Katrina on Small Businesses.’’ This hearing focused on 

the impacts of the hurricanes on small businesses, and provided 

the Committee with the opportunity to (1) receive a briefing on how 

the SBA responded to the Hurricane; (2) analyze the SBA’s immediate and long-term response plans; (3) receive feed-back on Hurricane Katrina-related small business legislation; and (4) investigate 

how Congress and the SBA could better assist victims of the Gulf 

Coast hurricanes and displaced small businesses. Witnesses at this 

hearing included representatives from the SBA, as well as several 

Gulf Coast business owners, such as John Rowland, owner of 

Southern Hospitality Systems, Inc. in Louisiana; Alta Baker, CEO 

of Safe Haven Enterprises in Jennings, Louisiana; Michele Sutton, 

owner of Fairway Ventures in Hammond, Louisiana; Richard Harris, owner of Harris Homes in Ocean Springs, Mississippi; and Timothy Swindall, Vice President of SWR, Inc. in Troy, Alabama. Mary 

Lynn Wilkerson, State Director of the Louisiana Small Business 

Development Center also testified. 

The Committee held the second disaster hearing entitled, ‘‘Strengthening Hurricane Recovery Efforts for Small Businesses,’’ on November 8, 2005. The Committee received an update on the 

SBA’s response to the 2005 hurricanes, analyzed SBA’s disaster response in the two months following the initial disaster hearing, investigated the SBA’s long-term disaster response plans, and examined the Administration’s policy regarding prime and subcontracting opportunities for small businesses. Witnesses at this hearing included representatives from the SBA, the U.S. Army Corps 

of Engineers, the U.S. Department of Homeland Security, the Government Accountability Office, and the Office of the Governor of 

Louisiana. These hearings provided insight into the immediate 

needs of affected small businesses and laid a foundation for the 

Committee’s SBA disaster loan program reauthorization efforts. On 

September 30, 2005, Senators Snowe, Kerry, Landrieu, and Vitter 

introduced the ‘‘Small Business Hurricane Relief and Reconstruction Act of 2006’’ (S. 1807). Although this bill represented a bipartisan, comprehensive approach to hurricane relief, it stalled due to 

the Administration’s opposition. Many of the tools offered in S. 

1807 are reflected in this bill. In addition, several provisions included in this bill originated from bills introduced during the 109th 

Congress, such as Senator Kerry’s bill, the ‘‘Small Business Disaster Loan Reauthorization and Improvements Act of 2006’’ (S. 

3487), Senator Snowe and Senator Vitter’s bill, the ‘‘Small Business 

Partners in Reconstruction Act of 2006’’ (S. 2608), and Senator 


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Landrieu’s bill, the ‘‘Small Business Disaster Recovery Assistance 

Improvements Act of 2006’’ (S. 3664). 

On August 2, 2006, the Committee unanimously passed a comprehensive SBA reauthorization bill that included a title on disaster response. This title, which represents the bipartisan priorities 

for the Committee, became the foundation for legislation introduced 

at the end of the 109th Congress, entitled ‘‘Small Business Disaster 

Response and Loan Improvements Act of 2006’’ (S. 4097). On January 4, 2007, Chairman Kerry, Ranking Member Snowe, and Senators Landrieu and Vitter introduced the ‘‘Small Business Disaster 

Response and Loan Improvements Act of 2007’’ (S. 163). 

On March 29, 2007, the Committee met in executive session to 

consider an amendment offered by Chairman Kerry in the nature 

of a substitute to S. 163. The substitute amendment rearranged the 

provisions of the bill into four titles: (1) Disaster Planning and Response; (2) Disaster Lending; (3) Disaster Oversight; and (4) Energy Emergency Loans. The amendment was adopted, as amended, 

and the Committee ordered the bill to be reported. 

II. DESCRIPTION OF BILL

Title I—Disaster planning and response 

Under regulations normally in place, only homeowners, renters, 

and for-profit businesses can apply for disaster loans. The bill extends the eligibility to non-profit institutions that was provided 

after the terrorist attacks of September 11, 2001. This provision 

was included in the Administration’s legislative package for 2008. 

The bill also increases the maximum size of an SBA disaster loan 

from $1.5 million per loan to $2 million per loan. Currently, when 

providing a disaster loan for uninsured damage suffered by a disaster victim, the SBA can increase the loan amount by up to 20 

percent of the uninsured portion of the borrower’s losses, so the 

borrower can invest in disaster mitigation technologies such as sea 

walls and storm shutters. The bill increases the amount that a borrower can borrow to spend on disaster mitigation. It would allow 

the SBA to increase the loan amount to 20 percent of the borrower’s total losses, rather than just 20 percent of the uninsured 

portion. This provision was suggested by the Administration in its 

proposal to rebuild the Gulf Coast region. 

After a disaster, the SBA usually provides additional staff and 

funding to assist only the SBA’s disaster loan program. However, 

the Small Business Development Centers (SBDCs), resource partners of the SBA, have played a critical role in providing additional 

assistance and counseling to the victims of disaster areas. To assist 

the SBDCs disaster recovery efforts, the bill authorizes the Administrator to waive the $100,000 maximum size for SBDC portability 

grants used for disaster response. In addition, SBDCs will be authorized to provide services to small businesses located outside the 

SBDC’s own home state if the small business concerns are located 

in a disaster area. The Committee also believes that SBDCs should 

be allowed to operate at disaster recovery sites, if permissible. 

This bill also directs the SBA to create a contracting outreach 

program for small businesses located in or having a significant 

presence in designated disaster areas. Federal contracts and subcontracts can provide critical assistance to small businesses located 


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in areas devastated by natural disasters in the form of solid business opportunities and prompt, steady pay. In addition, government procurement would open doors for many local small businesses to participate in the long-term reconstruction work necessary in these areas. While many small businesses would benefit 

from other forms of disaster assistance, many of them want to get 

back to work and into business again as soon as possible. Technical 

assistance and outreach through the SBA, the Procurement Technical Assistance Centers, the Federal Offices of Small and Disadvantaged Business Utilizations, and other organizations could 

prove invaluable to these firms. 

In its proposal to rebuild the Gulf Coast region, the Administration proposed to increase the maximum size of SBA surety bonds 

to $5 million, and provide the SBA with authority to increase the 

maximum size to $10 million. Small businesses vying for government contracts need an increase in bonds to handle larger projects 

for disaster relief. The Committee included this recommendation in 

the bill. 

The Small Business Competitiveness Demonstration (Comp 

Demo) Program denies protections established within the Small 

Business Act known as set-asides to small businesses involved in 

construction and specialty trade contracting, refuse systems and related services, landscaping, pest control, non-nuclear ship repair, 

and architectural and engineering services, including surveying 

and mapping. Historically, small businesses have been the backbone of these industries, and these industries are in heavy demand 

for disaster recovery efforts. The Comp Demo Program, ostensibly 

a test program, denies federal agencies like the Department of Defense and nine other agencies the ability to do small business setasides. Essentially, the Comp Demo Program reserves whole industries for big business. The bill terminates the application of the 

Small Business Comp Demo program. 

Currently, the SBA cannot disburse disaster loans of more than $10,000 without requiring collateral. This threshold is not indexed 

to inflation, and has remained level at $10,000 since 1998. Prior to 

1998, the amount was set at $5,000 since the enactment of the 

Small Business Act in 1958. This bill would raise the level to 

$14,000 to allow for homeowners and businesses to access additional capital without the need for collateral. 

The federal response to Hurricane Katrina also demonstrated the 

need for greater coordination among responding agencies. Following the Gulf Coast hurricanes, the SBA staff and volunteers 

found limited resources in terms of lodging in and around the disaster areas. The difficulty in sharing records between the IRS and 

the SBA resulted in extended delays in the loan application process. Disaster assistance application periods differed from agency to 

agency, making the application process confusing and burdensome 

for victims. 

This bill would enable FEMA, SBA, and other responding agencies to coordinate efforts in the aftermath of a disaster by making 

FEMA and SBA application periods consistent whenever possible. 

SBA and FEMA would be required to notify Congress 10 days prior 

to the date of a deadline for assistance so that the Committees may 

consider whether or not an extension is necessary. The bill directs 

the Administrator to utilize radio, television, print, and web-based 


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outlets to communicate information regarding available assistance 

under declared disasters. FEMA and SBA are directed to enter into 

an agreement that ensures adequate lodging and transportation for 

SBA employees and contractors whenever possible during disaster 

response. The bill also directs the SBA to develop a proactive marketing plan to make the public aware of potential disaster scenarios and what assistance is available through FEMA and SBA. 

Effective disaster response requires a clear set of procedures to 

be followed. Inconsistencies in procedures can lead to ineffective 

governance and breakdowns in response. In the interest of ensuring that the SBA’s regulations and procedures are consistent, the 

Committee directs the Administrator to conduct a study to determine whether the SBA’s standard operating procedures are consistent with the agency’s federal regulations for administering the 

disaster loan program. 

The Committee also recognizes that in the event of a large scale 

disaster, the SBA needs resources in order to effectively manage 

the volume of loan applications. The bill provides for the SBA to 

contract with private contractors to process disaster loans in the 

event of a large scale disaster. The SBA is also authorized to contract with loss verification professionals. The Administrator is directed to work to the maximum extent practicable with the Commissioner of the Internal Revenue Service to ensure that all relevant tax records for disaster loan applicants are shared in an expedited manner. 

The Committee is concerned that the SBA did not have a 

proactive, comprehensive disaster response plan in place in August 

2005. The Committee was pleased to learn that since May 2006, 

the SBA has been developing a comprehensive disaster response 

plan and that the SBA provided a status report to the Committee 

on this plan on July 14, 2006. Since this status update, however, 

the SBA has not produced a comprehensive response plan to date. 

The Committee expects the SBA to build upon the lessons learned 

from its response to the 2005 Gulf Coast hurricanes, and to ensure 

that the agency is better prepared for future disasters. 

The bill directs the SBA to submit to the Committee, along with 

the House Small Business Committee, the comprehensive disaster 

response plan of the Administration, along with a report detailing 

any updates or modifications made to the disaster response plan 

submitted July 14, 2006. To maintain this plan and to plan and coordinate appropriate response exercises, this bill creates a full-time 

disaster planning specialist position in the Office of Disaster Assistance. The plan shall include a description of how the Administrator intends to utilize district office personnel; a description of 

the disaster scalability model; a description of the structure of the 

agency-wide Disaster Oversight Council; a description of the Administrator’s plans to coordinate disaster response with state and 

local officials; recommendations on how the Administrator can better coordinate response efforts with the Departments of Commerce 

and Agriculture; any surge plans with respect to loan processing 

and loss verification; the Administrator’s findings and recommendations based on a review of the SBA response to the 2005 

Gulf Coast hurricanes; and the Adminstration’s plan for providing 

accommodations and necessary resources for disaster assistance 

personnel. 


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In this report, the Committee also expects the SBA to provide information on how it plans to integrate and coordinate the response 

to a disaster with the technical assistance programs of the Administration, including the small business development centers. Furthermore, in light of the GAO’s report entitled, ‘‘Actions Needed to 

Provide More Timely Disaster Assistance’’ (GAO–06–860), which 

details why the SBA struggled to provide timely assistance to 

homeowners affected by the Gulf Coast hurricanes, the Committee 

directs the SBA to detail how it plans to coordinate its efforts with 

the staff and resources of the Federal Housing Administration in 

the U.S. Department of Housing and Urban Development. 

The SBA’s centralized process for loan processing, disbursement, 

and customer service provides no clear point of access for disaster 

victims to communicate with SBA District Offices regarding their 

loan applications. This bill creates a disaster liaison to be staffed 

in each district office, who will be charged with case management 

and outreach to disaster victims as they proceed through the disaster loan process. Additionally, the bill provides for district offices 

to have the authority to process disaster loans in the event of a 

major disaster declaration. 

Title I also establishes floors for disaster reserve staff as well as 

for full time disaster assistance staff. In testimony before the Small 

Business Committee of the House of Representatives, Administrator Preston expressed concern over whether staff levels would 

dip below levels that are appropriate during a period of fewer than 

average large scale disasters. This provision would require the SBA 

to report to the authorizing Committees whenever staffing levels 

dropped below 800 for full time staff and 750 for the disaster reserve corps, also referred to as disaster cadre. 

Finally, Title I addresses the issue of the severe effects of minimal snowfall on the tourism industry. The provision requires the 

SBA to conduct a feasibility study on the ability of the Administrator to provide Economic Injury Disaster Loans to small businesses that depend on and are adversely affected by a lack of snow. 

This is a critical issue for the northern states across the country 

in areas where businesses rely on heavy snowfall to flourish. Small 

businesses in the tourism industry and those across the nation provide a significant return on investment, bringing jobs and revenue 

to the communities and states. It is critical that we think ahead, 

and equip these small businesses with the knowledge and tools to 

confront the challenges of tomorrow, so that they can create jobs 

and continue to strengthen our economy. 

Title II—Disaster lending 

The federal response to the 2005 Gulf Coast hurricanes demonstrated on a national stage the need for a reformed system of 

disaster response. Victims were unable to access the capital necessary to keep their businesses open in the aftermath, and homeowners found the SBA’s disaster loan application process burdensome and slow. Six months after Katrina struck, 48 percent of all 

disaster loans still remained unprocessed. GAO reported that as of 

May 27, 2006, the average length of time for the SBA to process 

a disaster loan had reached 74 days, well-above the Agency’s stated 

goal of 21 days. Although Administrator Preston has since taken 

demonstrable steps toward improving the efficiency of this proVerDate Aug 31 2005 10:37 May 09, 2007 Jkt 059010 PO 00000 Frm 00006 Fmt 6659 Sfmt 6602 E:\HR\OC\SR064.XXX SR064

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gram, additional legislative steps are necessary to improve and expand access to capital for businesses and homeowners following a 

large scale disaster. 

Certain disasters impact businesses beyond the geographic reach 

of a declared disaster area. Businesses across the Nation can be affected by a large-scale disaster that disrupts a region’s economy. 

This was evident in the aftermath of the terrorist attacks of September 11, 2001, and was again an issue following the 2005 Gulf 

Coast hurricanes. As a result, this bill creates a new declaration 

of disaster, a Catastrophic National Disaster, that would be used 

to provide nationwide economic injury disaster loans to businesses 

outside of a disaster’s geographic boundaries. 

The Committee recognizes the need to provide affected businesses with immediate access to capital and technical assistance 

within the first 30 days following a disaster to ensure their full recovery. 

The Committee is also concerned that the SBA’s Gulf Opportunity (GO) Loan program, which was initiated in November 2005 

to expedite small business financing to affected small businesses, 

only provided 222 GO Loans totaling $19 million as of May 2006, 

demonstrating that GO Loans were not an effective tool for immediate, short term response. 

For major disasters, State-administered bridge loan programs 

have served as an effective means of providing immediate capital 

to allow affected businesses to make repairs, make payroll, and 

continue operations. The Committee is aware of the problems the 

SBA faced in providing timely assistance to businesses impacted by 

the 2005 hurricanes, as well as the necessity for the SBA to have 

the ability to provide short-term assistance. The success of stateadministered bridge loan programs are evidence that a short-term 

infusion of capital can save businesses and jobs. As a result, the 

bill requires the SBA to create an expedited disaster assistance 

business loan program for future disasters. This program is designed to provide businesses with expedited access to short-term 

loans while they wait for other forms of long-term assistance. 

The bill also creates a Private Disaster Loan (PDL) program in 

which loans are made by private lenders who have applied for eligibility. Under the program, eligible businesses must be located in an 

area that was declared a disaster within the last 24 months. The 

business will not have to show a nexus between its need for a loan, 

and the disaster that occurred. 

The maximum loan size is set at $2 million. For businesses applying for PDLs of more than $250,000, collateral is required. 

Loans of less than $250,000 can be made without collateral, so long 

as the borrower otherwise qualifies and is approved by the bank 

The maximum term of the loan is set at 25 years if collateral is 

involved and 15 years for uncollateralized loans. 

The maximum guaranty of a PDL will be 85 percent, no matter 

the size of the loan. In addition, the SBA guaranty fee, which is 

2 to 3.5 percent for regular 7(a) loans, will be zero. There will be 

a loan origination fee of 15 basis points per loan paid to lenders 

by the SBA using appropriated funds. The bill also provides that 

the size standard used to determine a PDL borrower’s eligibility 

will be that which is currently used in the 7(a) program or that 

which is used in the 504 loan program. The acceptable uses of the 


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loan proceeds are the same as those applicable to current disaster 

loans approved under section 7(b). 

The bill authorizes the program to receive federal appropriations, 

and such appropriations will be used to reduce the interest rate in 

the program by up to 3 percent. If sufficient appropriations are provided, the interest rates charged by banks will be subsidized so 

that they are reduced by 3 percent. If less appropriations are provided, the rates may only be reduced by 2 percent, 1.5 percent, 

zero, etc. 

For documenting each loan, lenders would be allowed to use their 

own documents, subject to SBA approval, and applicants would be 

permitted to use an internet or electronic application process. 

Title III—Disaster oversight 

Included in this bill are provisions that direct the SBA to provide 

monthly reports to the House and Senate Committees on Small 

Business detailing disaster loan activity for the previous month, as 

well as weekly accounting reports during times of Presidentiallydeclared disasters. During the Gulf Coast response efforts, the SBA 

nearly ran out of funding to process loans. Congress had to step in 

twice to ensure sufficient funding was available so that disaster 

loans could continue to be processed and approved. The SBA has 

a responsibility to inform its oversight committees in a timely manner of any circumstances that may prevent the agency from providing assistance to victims. 

In addition to these reports, the SBA is required to provide regular reports on the number of contracts that are going to small 

businesses in federally-declared disaster areas, as well as a report 

detailing the need for supplemental funding when necessary. 

Finally, the SBA is directed to conduct a study of how the loan 

application process can be improved, including the viability of 

using alternative methods for assessing ability to repay a loan beyond a victim’s credit rating. Too often, victims who otherwise 

would be eligible for an SBA loan are denied as a result of poor 

credit; however the process does not take into account the extraordinary circumstances under which the credit rating has gone down. 

The SBA’s methods for assessing ability to repay should take these 

circumstances into account. 

Title IV—Energy emergencies 

This bill includes provisions which authorize the SBA Administrator to make economic injury disaster loans to small businesses 

that experience or are likely to experience economic injury as a result of a significant increase in the price of heating oil, natural gas, 

gasoline, propane, or kerosene. The bill defines a significant increase as an increase of more than 40 percent of the average price 

from the previous two years, taken over a period of ten days. The 

bill also authorizes the Secretary of Agriculture to make similar 

loans to small farms that are suffering similar economic injury. 

Both the Administrator and the Secretary are required to report to 

Congress on the effectiveness of the program. 

This four-year pilot program will allow small businesses and 

small farms to access the critical capital necessary to sustain abnormally high energy prices. In addition, loans may be used by borrowers to convert from the use of heating fuel to a reusable or reVerDate Aug 31 2005 10:37 May 09, 2007 Jkt 059010 PO 00000 Frm 00008 Fmt 6659 Sfmt 6602 E:\HR\OC\SR064.XXX SR064

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newable energy source. The Committee believes that energy economic injury disaster loans are necessary for the sustainability of 

small, energy-dependent businesses and farms during periods of increased cost, and that this program will not only allow small businesses to remain open, but will encourage them to seek alternative 

energy sources and to reduce their dependence on conventional 

ones. 

These provisions are from the Small Business and Farm Energy 

Emergency Relief Act S. 269, introduced by Senator Kerry in February of 2005. The bill has passed the Senate on two separate occasions, as S. 295 in the 107th Congress and as an amendment to 

the Energy Policy Act of 2005, although it was later dropped in 

conference. The proposal has received bipartisan support on both 

occasions. 

III. COMMITTEE VOTE

In compliance with rule XXVI(7)(b) of the Standing Rules of the 

Senate, the following votes were recorded on March 29, 2007. 

A motion by Chairman Kerry to adopt the following substitute 

amendment, as offered by Chairman Kerry, which passed by voice 

vote. 

Chairman Kerry’s amendment reorganized S. 163 into four titles: 

(1) Disaster Planning and Response; (2) Disaster Lending; (3) Disaster Oversight; and (4) Energy Emergency Loans. The amendment 

also made small changes to existing provisions at the request of the 

Small Business Administration, and added four additional sections 

(sections 113–116) to Title I. 

A motion by the Chair to adopt the Small Business Disaster Response and Loan Improvements Act of 2007, as amended, was approved by a voice vote. 

IV. COST ESTIMATE

In compliance with rule XXVI(11)(a)(1) of the Standing Rules of 

the Senate, the Committee estimates the cost of the legislation will 

be equal to the amounts discussed in the following letter from the 

Congressional Budget Office. 

May 1, 2007. 

Hon. JOHN F. KERRY, 

Chair, Committee on Small Business and Entrepreneurship, U.S. 

Senate, Washington, DC. 

DEAR MR. CHAIR: The Congressional Budget Office has prepared 

the enclosed cost estimate for S. 163, the Small Business Disaster 

Response and Loan Improvements Act of 2007. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Daniel Hoople. 

Sincerely, 

PETER R. ORSZAG. 

Enclosure. 

Summary: S. 163 would amend the existing disaster loan program of the Small Business Administration (SBA), as well as authorize several new loan programs for small businesses. The bill 

would: 


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• Make economic injury loans available to nonprofit organizations; • Increase the maximum loan that can be made for hazard 

mitigation purposes; • Authorize SBA to contract with private entities to process 

loans and verify losses; • Establish an immediate assistance program; and • Guarantee certain private loans made to small businesses 

in response to a disaster. 

Moreover, the bill would create two new direct loan programs for 

small businesses and agricultural producers suffering economic injury as a result of increased energy prices. CBO estimates that implementing S. 163 would cost $265 million over the 2008–2012 period, subject to the appropriation of the necessary funds. Enacting 

the bill would not affect direct spending or revenues. 

S. 163 contains no intergovernmental or private-sector mandates 

as defined in the Unfunded Mandates Reform Act (UMRA) and 

would impose no costs on State, local, or tribal governments. 

Estimated cost to the Federal Government: The estimated budgetary impact of the bill is shown in the following table. The costs 

of this legislation fall within budget functions 350 (agriculture) and 

450 (community and regional development). 

By fiscal year, in millions of dollars— 

2008 2009 2010 2011 2012 

CHANGES IN SPENDING SUBJECT TO APPROPRIATION 

Disaster Loan Guarantees: 

Estimated Authorization Level ....................................................................... 34 35 35 37 38 

Estimated Outlays .......................................................................................... 20 31 35 36 37 

Energy Emergency Loans to Nonfarm Businesses: 

Estimated Authorization Level ....................................................................... 13 13 13 14 6 

Estimated Outlays .......................................................................................... 8 12 13 13 10 

Disaster Loans to Private Nonprofit Organizations: 

Estimated Authorization Level ....................................................................... 3 3 3 3 3 

Estimated Outlays .......................................................................................... 2 3 3 3 3 

Agricultural Producer Emergency Loans: 

Estimated Authorization Level ....................................................................... 3 3 3 3 0 

Estimated Outlays .......................................................................................... 2 3 3 3 1 

Other Provisions Affecting SBA: 

Estimated Authorization Level ....................................................................... 6 5 5 5 5 

Estimated Outlays .......................................................................................... 4 5 5 5 5 

Total Proposed Changes: 

Estimated Authorization Level .............................................................. 59 59 59 62 52 

Estimated Outlays ................................................................................. 36 54 59 60 56 

Basis of estimate: For this estimate, CBO assumes that the bill 

will be enacted before the end of fiscal year 2007, that the necessary amounts will be appropriated for each year, and that spending will follow historical patterns for current and similar programs. 

The budgetary impact of the bill on SBA’s credit programs is 

measured in terms of projected subsidy costs. Under the Federal 

Credit Reform Act, such subsidy costs are estimated and recorded 

on the budget on a present value basis. S. 163 does not specify an 

explicit loan level authorization for either the subsidy or the administrative costs for the amendments it would make to SBA’s disaster loan program or for the new direct loan and loan guarantee 

programs authorized by the bill; CBO estimated those amounts 

using historical information about the demand for disaster loans 

and the past performance of SBA’s disaster loan program. 


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Disaster loan guarantees 

Section 202 would establish a new loan guarantee program for 

small businesses located in an area affected by a disaster. Under 

the proposal, a small business could apply directly to a qualified 

private lender for a disaster loan instead of applying to SBA, as 

under current law. The limit on individual loans would be $2 million and the federal government would guarantee up to 85 percent 

of the loan. In addition, the federal government would be authorized to pay a fee to the lenders for each loan originated under the 

program and to provide an interest rate subsidy of up to 3 percent. 

CBO expects that demand for the new loan guarantee program 

would come from businesses that could otherwise obtain a loan 

from the private market. Assuming the maximum interest subsidy 

allowable under the bill, such borrowers would likely receive more 

favorable terms under the new loan guarantee program than currently offered by SBA or a private lender. (Businesses determined 

by SBA to be unable to obtain credit in the private market, however, would continue to receive more favorable terms under SBA’s 

direct loan program and thus would not likely participate in the 

new guarantee program.) 

CBO estimates that the federal government would guarantee about $100 million per year in loans under this new program. Included in this estimate is $50 million in loans to businesses that 

would otherwise borrow through SBA’s direct loan program under 

current law. As such, the cost of those loan guarantees would be 

the marginal cost of subsidizing a loan guarantee rather than a direct SBA loan. In addition, our estimate includes about $50 million 

in loans to small businesses that would not have elected to obtain 

financing through SBA under current law. The additional cost for 

SBA to guarantee those loans, therefore, would equal the full subsidy cost of the new guarantees. 

Assuming that SBA would guarantee 85 percent (the maximum 

guarantee level authorized) of these loans and would subsidize the 

interest rate at the maximum allowable level under the bill, CBO 

estimates that the subsidy rate for this new loan program would 

be 30 percent. As such, CBO estimates that implementing this new 

loan guarantee program would cost $20 million in 2008 and about 

$160 million over the 2008–2012 period for subsidy costs and administration. 

Energy emergency loans to nonfarm businesses 

Section 402 would authorize the SBA to provide loans up to $1.5 

million to each small business that has suffered substantial economic injury as the result of increases in the price of heating fuel 

since October 2004. Small businesses could use loan proceeds to 

convert heating systems from heating fuel to renewable or alternative energy sources. Under the bill, the authority to make such 

loans would expire after four years. 

The SBA disbursed an average of 1,300 Economic Injury Disaster 

Loans (EIDLs) per year over the 2003–2005 period (2006 was excluded due to abnormalities resulting from loans made to areas affected by Hurricanes Katrina, Rita, and Wilma), with each loan 

averaging about $75,000. CBO estimates that demand for the energy emergency loan program would increase the number of EIDLs 

by 40 percent. In addition, CBO expects that loans made to busiVerDate Aug 31 2005 10:37 May 09, 2007 Jkt 059010 PO 00000 Frm 00011 Fmt 6659 Sfmt 6602 E:\HR\OC\SR064.XXX SR064

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nesses with higher energy costs would be more risky than loans 

made under the regular disaster program. As such, CBO estimates 

that the subsidy rate associated with this program would be 20 

percent (the estimated subsidy rate for the regular disaster program is 16 percent in 2008). Based on these parameters, CBO estimates that implementing this loan program would cost $8 million 

in 2008 and $56 million over the 2008–2012 period for subsidy and 

administrative costs. 

Disaster loans to private nonprofit organizations 

Section 101 would expand SBA’s EIDL program to include private, nonprofit organizations. Under current law, nonprofits may 

apply to SBA for physical damage disaster loans, but are not eligible to apply for economic injury loans. Based on the historical volume of physical disaster loans made to nonprofits and of EIDLs 

made to small businesses, CBO estimates that implementing this 

provision would cost $2 million in 2008 and $14 million over the 

2008–2012 period for the subsidy costs of such loans and for administrative expenses. 

Agricultural producer emergency loans 

Section 403 would amend an existing credit program administered by the Farm Service Agency of the USDA. The bill would expand eligibility for the emergency loan program to allow loans to 

producers with losses resulting from increased energy costs for the 

next four years. The Administration currently estimates that this 

program has a subsidy rate of 12 percent. In 2006, loan volume 

was $52 million. CBO estimates the proposed legislation would increase the volume of lending under the program by $25 million a 

year, with estimated subsidy outlays of $12 million over the 2008– 2012 period. 

Business expedited disaster assistance program 

Section 204 would direct SBA to establish a short-term loan program for small businesses affected by a disaster. Loans made under 

this new program would be for less than 180 days and could be 

used to pay employees, make repairs, purchase inventory, or cover 

other necessary costs until such time that the business is able to 

obtain funding through insurance claims or other federal assistance. Such loans would carry an interest rate of up to one percent 

above the prime interest rate charged by a private lender and could 

be refinanced using any subsequent assistance provided by SBA. 

CBO expects that demand for other SBA loans would not be significantly diminished by this new authority, although additional risk 

would be incurred for borrowers that receive a short-term loan and 

are later denied a traditional disaster loan. SBA expects that because that situation is not likely to occur often, CBO estimates that 

this program would have a negligible cost over the next five years. 

Disaster mitigation loans 

Section 102 would authorize SBA to make or guarantee loans for 

disaster mitigation up to a maximum of 20 percent of the assessed 

damage to a home or business. Currently, SBA offers direct loans 

for disaster mitigation purposes up to a maximum of 20 percent of 

an approved disaster loan. In some cases, SBA will make a disaster 


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loan for less than the assessed damage due to factors such as reimbursements from other sources. Thus, S. 163 would increase the 

maximum amount of a disaster mitigation loan by 20 percent of the 

difference between assessed damages and the approved loan 

amount. The demand for such loans tends to be relatively small, 

and CBO estimates that implementing this provision would have a 

negligible effect on the federal budget over the next five years. 

Contracting for disaster loan processing and verification 

Section 111 would authorize SBA to enter into agreements with 

private contractors and lenders to process and verify losses for disaster loans during major or catastrophic disasters. For this work, 

SBA would pay a fee for each loan processed or loss verified. Assuming a minimal difference in the fee paid by SBA and the administrative expense that the government would otherwise incur, 

CBO estimates that implementing this provision would have a negligible effect on the federal budget. 

Catastrophic national disaster loan program 

Section 201 would require the Department of Homeland Security, 

the Federal Emergency Management Agency, and SBA to establish 

a threshold for determining when an event would be deemed a catastrophic national disaster. Upon such a declaration, the SBA 

would be authorized under the bill to offer economic injury loans 

to small businesses nationwide that were adversely affected by the 

catastrophe. The terms of this loan program would be identical to 

the terms of the EIDL program under current law. SBA implemented a similar program following the terrorist attacks of September 2001. More than $500 million in economic injury loans were 

disbursed nationwide at a subsidy rate of abut 25 percent. Nonetheless, CBO cannot estimate the additional cost of this new loan 

program because CBO cannot predict the timing and severity of future disasters, nor what final criteria would be used to determine 

such an event. Over the next five years, we expect that the program would probably have a negligible cost because such disasters 

are rare. 

Other provisions affecting SBA 

Based on information from SBA, CBO estimates that implementing other provisions of S. 163 would require appropriations totaling $26 million over the next five years. That amount includes: 

• $15 million to hire a full-time disaster planning specialist 

and other staff necessary to maintain the levels specified in the 

bill and to fulfill additional reporting requirements; 

• $5 million to increase the maximum surety bond that SBA 

may guarantee for small businesses performing recovery work 

following a disaster who cannot obtain surety bonds in the private market; 

• $5 million to establish a contracting outreach and technical assistance program for small businesses located in disaster areas; and 

• $1 million to develop and execute simulation exercises to 

test the effectiveness of the disaster response plan. 

Those estimates are based on information from SBA regarding 

costs of existing or similar programs. Based on historical spending 


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patterns, CBO estimates that fully funding those activities would 

cost $4 million in 2008 and $24 million over the next five years, 

assuming appropriation of the necessary amounts. 

Intergovernmental and private-sector impact: S. 163 contains no 

intergovernmental or private-sector mandates as defined in UMRA 

and would impose no costs on State, local, or tribal governments. 

Estimate prepared by: Federal costs: SBA—Daniel Hoople; 

USDA—Greg Hitz. Impact on State, local, and tribal governments: 

Melissa Merrell. Impact on the private sector: Craig Cammarata. 

Estimate approved by: Peter H. Fontaine, Deputy Assistant Director for Budget Analysis. 

V. EVALUATION OF REGULATORY IMPACT

In compliance with rule XXVI(11)(b) of the Standing Rules of the 

Senate, it is the opinion of the Committee that no significant additional regulatory impact will be incurred in carrying out the provisions of this legislation. There will be no additional impact on the 

personal privacy of companies or individuals who utilize the services provided. 

Æ 


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