SMALL BUSINESS 

ADMINISTRATION

Additional Steps

Needed to Help

Ensure More Timely 

Disaster Assistance

Statement of William B. Shear,

Director, Financial Markets and

Community Investment

Testimony 

Before the Committee on 

Small Business,

House of Representatives

For Release on Delivery 

Expected at 11:00 A.M. ET

Wednesday, July 8, 2015

GAO-15-727T

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO 15-727T, a testimony 

before the Committee on Small Business,

House of Representatives

July 2015

SMALL BUSINESS ADMINISTRATION

Additional Steps Needed to Help Ensure More Timely 

Disaster Assistance

Why GAO Did This Study

With an estimated $67 billion in 

damage, Hurricane Sandy (October 

2012) was the costliest Atlantic storm 

since Katrina in 2005. SBA administers 

the Disaster Loan Program, which 

provides physical disaster loans (to 

rebuild or replace damaged property)

and economic injury loans (for working 

capital until normal operations resume)

to help businesses and homeowners

recover from disasters. 

This testimony discusses (1) the

timeliness of SBA’s disaster loans, (2) 

loan approval, withdrawal, and 

cancellation rates for selected previous

disasters; and (3) the extent to which 

SBA implemented loan programs 

mandated by the Small Business 

Disaster Response and Loan 

Improvements Act of 2008. This 

testimony is based on GAO’s 

September 2014 report (GAO-14-760) 

on SBA assistance to small businesses 

after Sandy. For that report, GAO 

analyzed SBA data on application 

processing, reviewed documentation 

related to SBA’s planning, reviewed 

relevant legislation and regulations, 

and interviewed SBA officials. GAO 

provides updates on steps SBA has 

taken to implement GAO’s 

recommendations.

What GAO Recommends

In September 2014, GAO 

recommended that SBA revise its 

disaster planning documents, conduct 

a formal documented evaluation of

lenders’ feedback on IDAP, and report 

to Congress on challenges to 

implementing the program. SBA has 

since taken steps to revise its planning 

documents and received and 

documented some lender feedback, 

but has not reported to Congress.

What GAO Found

Following Hurricane Sandy, the Small Business Administration (SBA) did not 

meet its timeliness goal (21 days) for processing business loan applications. 

From receipt to loan decision, SBA averaged 45 days to process physical 

disaster loans and 38 days for economic injury loans. SBA did not expect early 

receipt of a high volume of loan applications, and delayed increasing staffing—

which in turn increased processing times. As of September 2014, SBA had not 

revised its disaster planning documents to reflect the effects that application 

volume and timing could have on staffing, resources, and forecasting models for 

future disasters. Federal internal control standards state that management 

should identify risks and take action to manage them. Without taking its postSandy experience with application submissions into account in its disaster 

planning documents and analyzing the potential risks posed for timely response, 

SBA might be unprepared for similar situations in future disasters, which could 

delay getting loan funds to disaster victims. In June 2015, SBA provided GAO 

with an updated version of one disaster planning document—the Disaster 

Playbook—which includes discussion of early application volume and references 

to updated staffing models. GAO’s review of these changes is ongoing.

In comparison with the five disasters that generated the most SBA disaster loan 

applications since 2005, the loan approval rate after Sandy was not consistently 

higher or lower, but the application withdrawal and loan cancellation rates (32 

percent and 38 percent, respectively) were consistently higher than other 

disasters. SBA approved 42 percent of business loan applications after Sandy, a 

rate lower than for Katrina, Rita, and Wilma, higher than for Ike, and comparable 

with that for Irene. For Hurricane Sandy and for previous disasters, SBA primarily 

declined business loan applications because of applicants’ lack of repayment 

ability and credit history.

As of June 2015, SBA had not implemented the guaranteed disaster loan 

programs Congress mandated in 2008, including the Immediate Disaster 

Assistance Program (IDAP)—a bridge loan program in which private-sector 

lenders would provide disaster victims with up to $25,000 and an SBA decision

within 36 hours of a lender’s application on behalf of a borrower. In 2014, SBA 

officials told GAO they were trying to implement IDAP but had received some

feedback from lenders that some program requirements—such as a statutory 

minimum 10-year loan term under certain circumstances—might discourage 

lender participation. SBA had not conducted a formal documented evaluation of 

lender feedback to establish what implementation challenges the agency might 

face and to determine what, if any, statutory changes Congress could consider.

Without an appropriately documented evaluation of lender feedback, SBA might 

not have reliable information with which to inform its own actions and its reporting 

to Congress about challenges with implementing the programs. In June 2015, 

SBA provided GAO with documentation of additional outreach performed in 

October 2014, where lenders provided specific feedback regarding current 

statutory requirements and proposed program requirements. SBA has yet to 

adopt a plan for how and whether it will proceed with IDAP implementation or 

document the challenges it would face in implementing the program. Therefore, 

SBA has not reported to Congress on these issues.

View GAO-15-727T. For more information, 

contact William B. Shear at (202) 512-8678 or 

shearw@gao.gov.
Letter

Page 1 GAO-15-727T 

Chairman Chabot, Ranking Member Velázquez, and Members of the 

Committee:

I am pleased to be here today to discuss the Small Business 

Administration’s (SBA) response to Hurricane Sandy, the costliest Atlantic 

storm since Hurricane Katrina in 2005. Sandy made landfall in the United 

States on the New Jersey shore on October 29, 2012, and estimated 

damage totaled approximately $67 billion. Although 24 states were 

affected, New Jersey and New York (particularly the New York City 

metropolitan area) were the most impacted states. While SBA is known 

primarily for its financial support of small businesses, the agency also 

plays a critical role in assisting victims of natural and other disasters 

through its Disaster Loan Program, which assists businesses of all sizes, 

homeowners, and renters affected by federally declared disasters.

Following Hurricane Sandy, SBA received disaster loan applications from 

nine states and Puerto Rico, with the majority of the business disaster 

loan applications generated by businesses in New Jersey and New York. 

Concerns were raised regarding the timeliness of the financial assistance 

business owners received. In particular, there were questions about the 

extent to which the program improved since Hurricane Katrina, and 

whether previously identified deficiencies, such as delays in processing 

loan applications, had been addressed.

My testimony today is based on information in our September 2014 report 

on SBA’s response to Hurricane Sandy, and includes updates on steps 

SBA has taken to address two recommendations from that report. One 

recommendation related to better planning for high volumes of loan 

applications and another related to evaluating lender feedback to inform 

SBA and Congress about challenges to implementing a new loan 

program and determining if statutory changes might be necessary to aid 

implementation, and then reporting to Congress about any such 

challenges or changes.1 Specifically, this testimony discusses (1) the 

timeliness of SBA’s disaster assistance to small businesses and factors 

affecting timeliness, (2) comparative loan approval, withdrawal, and 

cancellation rates after selected disasters; and (3) the extent to which 

 1

GAO, Small Business Administration: Additional Steps Needed to Ensure More Timely 

Disaster Assistance, GAO-14-760 (Washington D.C.: Sep. 29, 2014).

Letter
Page 2 GAO-15-727T 

SBA implemented loan programs mandated by the Small Business 

Disaster Response and Loan Improvements Act of 2008.

For our September 2014 report, to evaluate the timeliness of SBA’s 

disaster assistance to small businesses after Sandy, we obtained and 

analyzed data on application processing from SBA’s Disaster Credit 

Management System (DCMS), reviewed documentation on SBA’s loan 

processing procedures and its internal assessment of its response to 

Sandy, and interviewed knowledgeable SBA officials. We spoke with six 

Small Business Development Centers and eight local business 

organizations in New Jersey and New York to identify challenges 

businesses faced in receiving timely disaster assistance.2 We obtained 

and analyzed DCMS data for the largest disasters from 2005 to 2012 as 

measured by loan application volume (Hurricanes Katrina, Rita, Wilma, 

Ike, Irene, and Sandy) to compare approval, withdrawal, and cancellation 

rates. We also performed comparisons on the DCMS data we received to 

ensure its accuracy and completeness and interviewed SBA officials 

responsible for maintaining the data. We concluded that SBA’s data were 

sufficiently reliable for the purposes of our report.

To assess the extent to which SBA implemented programs mandated by 

the Small Business Disaster Response and Loan Improvements Act, we 

reviewed relevant legislation and regulations, and interviewed officials 

knowledgeable about these matters. The work on which this statement is 

based was conducted from August 2013 through September 2014 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. To update the status of our 

recommendations, in June 2015 we spoke with SBA officials about steps 

SBA had taken to address our recommendations, and reviewed updated 

documentation related to SBA’s disaster planning and lender outreach.

 2

Small Business Development Centers are hosted by universities and state economic 

development agencies, and funded in part through a partnership with SBA. They provide 

aspiring and current small business owners with free or low-cost services such as 

business plan development, financial packaging and lending assistance, exporting and 

importing support, disaster recovery assistance, and procurement and contracting aid.
Page 3 GAO-15-727T 

Administered by SBA’s Office of Disaster Assistance (ODA), the Disaster 

Loan Program is the primary federal program for funding long-range 

recovery for nonfarm businesses that are victims of disasters and is the 

only form of SBA assistance not limited to small businesses.

SBA can make available several types of disaster loans, including two 

types of direct loans: physical disaster loans and economic injury disaster 

loans.

• Physical disaster loans are for permanent rebuilding and 

replacement of uninsured or underinsured disaster-damaged property. 

They are available to homeowners, renters, businesses of all sizes, 

and nonprofit organizations. These loans are intended to repair or 

replace the disaster victims’ damaged property to its predisaster 

condition up to a certain capped amount.

• Economic injury disaster loans provide small businesses that are 

not able to obtain credit elsewhere with necessary working capital 

until normal operations resume after a disaster declaration. The loans 

cover operating expenses the business could have paid had the 

disaster not occurred.

Not all businesses are eligible for both types of loans. Businesses of all 

sizes may apply for physical disaster loans, but only small businesses are 

eligible for economic injury loans.3

Congress enacted the Small Business Disaster Response and Loan 

Improvements Act of 2008 to expand steps taken by SBA after Hurricane 

Katrina and require new measures to help ensure that SBA would be 

prepared for future disasters. The act includes three provisions requiring 

SBA to issue regulations to establish new guaranteed disaster programs 

using private-sector lenders:4

 3

Businesses of all sizes are eligible for physical disaster loans, and SBA does not 

maintain data on business size for these types of loans. Therefore, information specifically 

on small businesses that received a physical disaster loan is unavailable. Data on physical 

disaster loan applications or total business disaster loan applications presented in this 

testimony include information about businesses of all sizes.

4

Pub. L. No.110-246, §§ 12083 -12085.

Background
Page 4 GAO-15-727T 

• Expedited Disaster Assistance Loan Program (EDALP) would 

provide small businesses with expedited access to short-term 

guaranteed loans of up to $150,000.

• Immediate Disaster Assistance Program (IDAP) would provide 

small businesses with guaranteed bridge loans of up to $25,000 from 

private-sector lenders, with an SBA decision within 36 hours of a 

lender’s application on behalf of a borrower.

• Private Disaster Assistance Program (PDAP) would make 

guaranteed loans available to homeowners and small businesses in 

an amount up to $2 million.

The following section discusses the extent to which SBA met goals for 

timely processing of business loan applications and factors affecting 

timeliness; changes SBA made to address processing issues; and 

challenges that business organizations identified to timely receipt of 

assistance.

Following Hurricane Sandy, SBA did not meet its goal to process 

business loan applications within 21 days from receipt to loan decision. 

SBA took an average of 45 days for physical disaster loan applications 

and 38 days for economic injury applications.5

The average processing time for business loans peaked in March 2013 (5 

months after the storm); business loans for which SBA reached a 

decision in March 2013 had spent nearly 60 days being processed, on 

average. One year after the storm, processing times for business loan 

applications still exceeded 21 days.

 5

In a June 2014 report, the SBA Office of Inspector General (OIG) found that the 

methodology that SBA used to calculate average loan processing times incorporated the 

times for automatically declined applications. The OIG also found that SBA’s time goals 

for disaster loan processing—particularly those reported in the agency’s Congressional 

Budget Justification—were established without considering potential increases in 

application volumes. The OIG’s recommendations included that SBA establish processing 

time standards for different application volumes based on historical performance. SBA 

agreed to establish such standards and included the standards in the most recent updates 

to ODA’s Disaster Playbook and the agency’s Disaster Preparedness and Recovery Plan. 

See SBA, Office of Inspector General, Improving Accuracy of Performance Reporting to 

Better Manage Disaster Loan Processing Time Expectations, No. 14-14 (Washington, 

D.C.: June 30, 2014).

Timeliness of

Disaster Assistance 

and Challenges

to Address

SBA Did Not Meet Its 

Timeliness Goal for 

Application Processing 

and Backlog Grew Rapidly
Page 5 GAO-15-727T 

A backlog of applications that were “in processing” (meaning SBA had not 

yet made a loan decision) grew rapidly over the course of SBA’s 

response to the disaster (see fig. 1).

Figure 1: Number of Hurricane Sandy Business Disaster Loan Applications Received and in Processing, October 2012-

January 2014

Note: Hurricane Sandy made landfall on October 29, 2012. The final week spans from January 27, 

2014, to February 2, 2014. Business applications “received” represent the number of applications 

submitted to SBA during the week. Business applications “in processing” are the cumulative total of 

applications on which SBA had not yet made a decision (to approve or decline) and represent the 

backlog for business disaster loan applications.

SBA said that in the aftermath of Hurricane Sandy, it was challenged by a 

high volume of loan applications submitted at a faster rate than it had 

experienced in previous disasters. SBA’s initial estimates of when it would 

receive applications differed from when it actually received them.

To prepare for a disaster, SBA uses assumptions about the volume and 

timing of the applications it expects to receive based on historical data—

known as the “application intake curve.” These assumptions serve as 

inputs to forecasting models that predict the staff levels necessary to 

meet processing needs.

SBA Did Not Anticipate 

Early Timing and High 

Volume of Applications
Page 6 GAO-15-727T 

According to the application intake curve for Hurricane Sandy, SBA 

estimated that application submission would peak about 7–9 weeks after 

Sandy. However, as shown in figure 2, SBA began receiving business 

applications earlier. According to SBA, the early spike in applications 

occurred because a majority of applications were submitted electronically 

rather than on paper, which resulted in a large volume of applications 

within a few days of the disaster. SBA stated that the earlier receipt of 

electronic submissions was caused by the convenience and speed of the 

Internet-based application as well as the elimination of postal handling 

time. While SBA created web-based loan applications to simplify and 

expedite the application process and encouraged electronic submissions, 

SBA noted that it did not anticipate receiving such a large volume of 

electronic loan applications early in its response to Hurricane Sandy.

Figure 2: Number of Hurricane Sandy Business Disaster Loan Applications SBA Received, October 2012-January 2014

Note: Hurricane Sandy made landfall on October 29, 2012. The final week spans from January 27, 

2014, to February 2, 2014.

Based on its experience in fiscal year 2012, SBA initially estimated that it 

would receive between 11,000 and 21,600 business disaster loan 

applications after Sandy and 36 percent of all applications would be 
Page 7 GAO-15-727T 

submitted electronically. Following Sandy, SBA received 15,745 business 

disaster loan applications, and 55 percent of all applications were 

submitted electronically.6

At the time of our report, SBA had not updated its key disaster planning 

documents—the Disaster Preparedness and Recovery Plan and the 

Disaster Playbook—to adjust for the effects that a Sandy-like surge in 

early applications could have on staffing, resources, and forecasting 

models for future disasters.7 Federal internal control standards state that 

management should identify risk (with methods that can include 

forecasting and strategic planning) and then analyze the risks for their 

possible effect.8 According to SBA’s Preparedness and Recovery Plan, 

the primary goals of forecasting and modeling are to predict as accurately 

as possible the application volume that will result from a disaster and the 

timing of application receipt. Without taking its experience with early 

application submissions after Hurricane Sandy into account, SBA risked 

being unprepared for such a situation in future disaster responses, 

potentially resulting in delays in disbursing loan funds to disaster victims. 

We therefore recommended that SBA revise its disaster planning 

documents to anticipate the potential impact of early application 

submissions on staffing and resources for future disasters, as well as the 

risk this impact might pose for timely disaster response.

In response to our recommendation, SBA has updated its Disaster 

Playbook. The changes SBA made include explicit recognition of the 

effects that high volumes of loan applications early in the response period 

could have on staffing and loan processing. Our review to determine if 

these changes addressed our recommendation remains ongoing.

 6

The total number of business disaster loan applications includes “reconsiderations”—

applications declined upon first submission and resubmitted for a second review—and 

“appeals”—reconsidered applications that are declined and resubmitted for a third review. 

7

While the plan is an agency-wide document intended to ensure a broad scope of 

coordination, awareness, and support throughout the organization, the Disaster Playbook

is an ODA document that describes steps that the office will take to respond to a declared 

disaster. It outlines the roles and responsibilities of ODA departments, resource partners, 

and other partners in the private sector at each major phase of the disaster recovery 

process. 

8

See GAO, Standards for Internal Control in the Federal Government, 

GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999). 
Page 8 GAO-15-727T 

Another factor that affected the timeliness of disaster assistance was 

inaccurate expectations for application processing rates, which caused 

SBA to delay its decision to increase staff levels. ODA officials said the 

agency’s processing and disbursement center communicated inaccurate 

production estimates to ODA headquarters, which led to delays in 

increasing staff levels to respond to the early influx of applications. ODA 

officials said that the center’s management projected a loan officer could 

process an average of 3 home loan applications and 1.5 business loan 

applications per day, for a combined average of 2.25 disaster loan 

applications. However, this expectation was not met over the course of 

the response. Because the estimates were based on production 

benchmarks established after Hurricane Katrina, ODA officials noted that 

they relied on the estimates and delayed their decision to increase staff. 

ODA officials said they later recognized the past rate was not an 

appropriate indicator of production for Sandy due to factors including 

differences in the types of businesses affected and the larger number of 

approved applications.

As shown in figure 3, ODA ultimately added loan officers to two agency 

locations (Buffalo and Sacramento) after the peak months of receipts.9

 9

While the processing and disbursement center is dedicated to loan application 

processing, SBA maintains space for additional loan officers in its Sacramento office, 

known as the Disaster Assistance Field Operations Center—West. Following Hurricane 

Sandy, ODA also added loan officers in the Disaster Assistance Customer Service Center 

in Buffalo.

Inaccurate Processing 

Expectations Also Delayed 

Decision to Increase Staff
Page 9 GAO-15-727T 

Figure 3: Number of Active Loan Officers and Hurricane Sandy Business Disaster Loan Applications Received by Week, 

October 2012–May 2013

Note: The weekly data for loan officers and business applications received differ by 1 day. For 

example, the final week of data for loan officers ends on May 18, 2013, and the final week of data for 

business applications ends on May 19, 2013.

We reported in September 2014 that ODA told us it subsequently made 

several changes regarding communication with the processing and 

disbursement center and staffing increases. The center was required to 

produce a new series of daily reports for ODA headquarters to improve 

communication during future disasters. Specifically, these reports include 

more detailed information on production rates, number of applications 

submitted, and size of the application backlog. ODA also created a 

standard template for requesting and justifying additional staff that 

included information such as current and expected performance. At the 

time of our report, SBA also was determining whether it needed to add 

permanent loan processing staff to offices other than the processing and 

disbursement center to respond to disasters.
Page 10 GAO-15-727T 

To address challenges with providing timely assistance following 

Hurricane Sandy, SBA made various changes to its loan processing 

approach, DCMS, and loan officer training. However, as we stated in 

2014, because SBA has not received a large volume of applications since 

Hurricane Sandy, it is too early to determine whether these changes will 

improve the timeliness of SBA’s response for future disasters similar in 

magnitude to Sandy.

• Loan processing approach: SBA used to process loans in the order 

in which they were received, regardless of whether the applicant was 

a business or homeowner. After Sandy, SBA received more than four 

times as many home loan applications as business applications, and 

these home loan applications were received earlier. As a result, 

business owners faced delays due to the large number of home loan 

applications submitted ahead of them. In October 2013, SBA put in 

place two separate application tracks for home and business loans.

10

• DCMS challenges: Over the course of its response, SBA 

encountered various challenges with DCMS, including server 

hardware crashes and periods of system latency (slowness and 

freezing), which added to some delays faced by business owners in 

receiving disaster assistance. In 2014, we reported that according to 

SBA, the agency was taking steps to improve DCMS for future 

disasters. For example, SBA planned to institute a process for 

updating system equipment (including conducting a baseline inventory 

and implementing a plan to replace outdated hardware). SBA officials 

said the inventory had been validated and the plan completed. In 

addition, SBA officials said the agency made improvements to its 

DCMS Help Desk, which responds to loan officers who experience 

system issues.

• Loan officer training: Most of the additional processing staff, 

particularly in Sacramento, were new hires, but SBA found that the 

new officers were not effectively trained to quickly respond to the 

 10SBA made the changes in response to a recommendation by the Hurricane Sandy 

Rebuilding Task Force. The Task Force was created in December 2012 by President 

Obama to ensure cabinet-level, government-wide coordination to help communities 

affected by Hurricane Sandy. The Task Force was chaired by the Department of Housing 

and Urban Development, and SBA participated as a member. In August 2013, the Task 

Force released the Hurricane Sandy Rebuilding Strategy report, which included 69 

recommendations designed to eliminate barriers to recovery. See Hurricane Sandy 

Rebuilding Task Force, Hurricane Sandy Rebuilding Strategy: Stronger Communities, A 

Resilient Region (Washington, D.C.: August 2013).

SBA Took Actions to 

Address Other

Processing Challenges
Page 11 GAO-15-727T 

backlog of business applications. In 2014, we reported that SBA 

revised its loan officer training for future disasters. For instance, all 

loan officers had to complete a revised training course for processing 

business loans. SBA officials also noted that the agency reorganized 

loan officers into two groups that specialize in processing home and 

business loans based on the previously mentioned changes to the 

loan processing approach.

Select Small Business Development Centers and local business 

organizations in New York and New Jersey with which we met in 2014 

identified two main challenges (from the perspective of small businesses) 

that affected the timeliness of assistance: time-consuming loan 

documentation requirements and lack of SBA follow-up. We reported on 

steps SBA said it would take to address these two challenges.

Nearly all 14 development centers and local business organizations noted 

that meeting documentation requirements for applications was timeconsuming and onerous to business owners. SBA officials said that the 

agency was taking several steps to streamline the documentation 

requirements for applicants. Specifically, SBA examined the entire loan 

application process to identify and eliminate documents that did not help 

loan officers make a decision on an application. According to SBA 

officials, the proposed changes to the required documentation were 

drafted and would be incorporated by the end of 2014 in the disaster loan 

program’s standard operating procedures. Furthermore, SBA took steps 

to reduce documentation requirements for applicants with strong credit 

scores by amending regulations to allow the agency to rely on credit 

scoring rather than cash flow when determining an applicant’s ability to 

repay.11

More than half of the entities with which we met said that business 

owners noted a lack of SBA contact after submitting their applications, 

and many owners were unaware of the status of their application 

 11Prior to its amendment, 13 C.F.R. § 123.6 required SBA to analyze every applicant’s 

personal and business cash flow, a time-consuming process that included debt 

reconciliation and a repayment analysis to determine if funds were available for both loan 

payments and day-to-day living expenses. SBA amended 13 C.F.R. § 123.6 to allow the 

agency to base repayment ability determinations on either cash flow or credit, including 

credit score. The repayment analysis still includes verification of income/employment 

through federal income tax returns. 

Organizations Identified 

Challenges Businesses 

Faced in Receiving

Timely Assistance
Page 12 GAO-15-727T 

throughout the process, including whether or not it had been received at 

the processing center. Additionally, five entities noted a lack of continuity 

with loan officers or case managers over the course of the application 

process.12 Two of these five entities said that some business owners had 

had up to eight different loan officers or case managers. In addition, these 

five entities reported that submitted documentation and information were 

lost when loan officers and case managers changed.

According to SBA officials, due to the physical damage caused by 

Hurricane Sandy, it was difficult for loan officers and case managers to 

contact applicants by telephone or e-mail despite their efforts. SBA 

officials told us that an applicant might have more than one loan officer or 

case manager for several reasons, such as when application numbers 

increased or if current loan officers or case managers had to supervise 

newer staff. SBA officials also told us that some documents could be 

misplaced due to the multiple ways applicants could submit information to 

the processing and disbursement center. In addition, some documents 

may not have been misplaced; rather, they may not yet have been 

entered into DCMS and thus were unavailable for loan officers to view.

According to SBA officials in 2014, efforts to process electronic 

application submissions more effectively would address these issues. The 

officials said SBA expected to create an electronic portal that would share 

information with applicants on the status of their applications and 

documents received, thus increasing transparency and communication 

during the loan application process.

As explained previously, for our 2014 report we compared SBA’s 

approval, withdrawal, and cancellation rates for business loans after 

selected disasters. In comparison with the other disasters, the approval 

rate after Sandy was not consistently higher or lower, but withdrawal and 

cancellation rates were consistently higher.

Approval rates. The approval rate for business loan applications for 

Hurricane Sandy (42 percent) was lower than for Hurricanes Katrina, Rita, 

and Wilma, higher than for Hurricane Ike, and comparable to the rate for 

 12According to SBA, a loan officer is responsible for making loan application decisions and 

a case manager is responsible for closing and disbursing the loan.

Loan Approval, 

Withdrawal, and 

Cancellation Rates in 

Selected Disasters
Page 13 GAO-15-727T 

Hurricane Irene. However, when taking home loan applications into 

account, Sandy resulted in the highest total approval rate (53 percent) in 

comparison to the five other disasters.13

The primary reasons for which SBA declined business loan applications 

after each of the disasters remained the same: lack of repayment ability 

and unsatisfactory credit history. Following Hurricane Sandy, SBA 

received 14,938 business loan applications and declined 5,663 as of 

January 31, 2014. Of the declined applications, SBA cited lack of 

repayment ability as at least one of the reasons on 2,644 applications 

(47 percent), and unsatisfactory credit history as at least one of the 

reasons on 2,317 applications (41 percent).14

Withdrawals. Application withdrawal rates were higher after Sandy than 

after the other disasters. Of the 14,558 original business loan applications 

that had reached a decision status by January 31, 2014, 4,715 

(approximately 32 percent) had been withdrawn by SBA or the 

applicant.15 The withdrawal rates for the previous disasters ranged from 

approximately 18 percent (Ike) to approximately 23 percent (Katrina and 

Wilma). For Hurricane Sandy, SBA withdrew approximately 60 percent of 

the 4,715 applications, while applicants requested withdrawal for the 

remaining 40 percent. The 60 percent figure for SBA-initiated withdrawals 

was higher than for two of the other disasters and lower for three. The 

leading reason for withdrawals after Sandy was the applicant’s failure to 

provide SBA with all requested information (1,542 withdrawals or 

approximately 33 percent of all withdrawn applications).

 13Approximately 83 percent of the original loan applications SBA received after Hurricane 

Sandy were for homes. The “original” category excludes resubmissions after 

reconsiderations or appeals. SBA received 85,456 original disaster loan applications—

70,518 for home loans and 14,938 for business loans. The total approval rates for the 

previous disasters, in reverse chronological order, were Hurricane Irene, 37 percent; 

Hurricane Ike, 22 percent; Hurricane Wilma, 49 percent; Hurricane Rita, 37 percent; and 

Hurricane Katrina, 46 percent.

14SBA can cite more than one reason for declining an application. Of the 5,663 Hurricane 

Sandy applications that SBA denied, 1,020 (18 percent) had two or more decline codes.

15A withdrawn application is one that is removed from consideration before SBA decides 

to approve or decline. Either SBA or an applicant can withdraw a business loan 

application. The 14,558 figure for total applications omits 380 applications that remained in 

various stages of processing as of January 31, 2014.
Page 14 GAO-15-727T 

Cancellations. Of the 4,180 business loan applications SBA approved for 

Hurricane Sandy, 1,578 (38 percent) had been cancelled as of January 

31, 2014—a rate higher than for the other disasters.16 The other 

cancellation rates ranged from approximately 22 percent (Wilma) to 

approximately 30 percent (Ike and Katrina). Of the business loans 

cancelled after Hurricane Sandy, borrowers requested cancellation of 

1,171 loans (74 percent), while SBA cancelled 407 (26 percent). The 

most common reason for SBA-initiated cancellations was “failure to 

complete and return all loan closing documents,” representing 336 

cancellations (21 percent).

According to SBA, factors affecting the withdrawal and cancellation rates 

for Hurricane Sandy included higher rates of insurance coverage in the 

footprint of the disaster area and the availability of alternative sources of 

recovery aid (such as grants). Officials told us that the rollout of programs 

funded by the Department of Housing and Urban Development’s 

Community Development Block Grant program began earlier than in past 

disasters, and that state grantees—specifically New Jersey and New 

York—obtained those funds and accepted applications for their respective 

state grant programs shortly after the disaster struck.

Half of the entities with which we spoke—selected business development 

centers and local business organizations in New Jersey and New York—

provided perspectives on the most common reasons why applications 

were withdrawn after Sandy. For instance, business owners commonly 

withdrew applications because they had changed their plans for funding 

their recovery (for example, they may have received insurance claim 

proceeds or state grants). Entities also noted other reasons, such as 

frustration with waiting times for loan processing and a desire not to incur 

additional debt.

 16SBA disaster loans can be cancelled after approval. A cancellation does not affect the 

calculation of SBA’s approval rate—approved loans are recorded as approvals even if 

subsequently cancelled. Either SBA or the borrower can initiate a cancellation. 
Page 15 GAO-15-727T 

In 2014 we reported that 6 years after Congress passed the Small 

Business Disaster Response and Loan Improvements Act of 2008, SBA 

had not piloted or implemented three guaranteed disaster loan programs, 

which therefore had not been available after Hurricane Sandy. As 

previously discussed, the act mandated the creation of the Immediate 

Disaster Assistance Program (IDAP), the Expedited Disaster Assistance 

Loan Program (EDALP), and the Private Disaster Assistance Program 

(PDAP). According to SBA officials, the agency opted to implement IDAP 

first, because the loan limit was lower than in the other two programs and 

SBA received appropriations to pilot this program.

We had examined SBA’s implementation plans before 2014. In a July 

2009 report, we noted that SBA was planning to implement requirements 

of the 2008 act, including pilot programs for IDAP and EDALP.17 SBA 

requested funding to carry out requirements for the two programs in the 

President’s budget for fiscal year 2010 and received subsidy and 

administrative cost funding of $3 million in the 2010 appropriation, which 

would have allowed the agency to pilot about 600 loans under IDAP. The 

agency issued regulations for IDAP in October 2010. In May 2010, SBA 

told us that its goal was to have the pilot for IDAP in place by September 

2010.18 We concluded that because the implementation process already 

was behind schedule, it would be important for SBA to ensure it had a 

plan to implement remaining requirements of the 2008 act and report on 

its progress to Congress. We therefore recommended that SBA develop 

an implementation plan and report to Congress on progress in addressing 

all requirements within the act and include milestone dates for completing 

implementation and any major program, resource, or other challenges the 

agency faced.19

However, as of August 2014, the pilot program for IDAP had not yet 

started. According to SBA officials, the program had not been

implemented for two primary reasons: (1) information technology 

 17GAO, Small Business Administration: Additional Steps Should Be Taken to Address 

Reforms to the Disaster Loan Program and Improve the Application Process for Future 

Disasters, GAO-09-755 (Washington D.C.: July 29, 2009).

18GAO, Small Business Administration: Progress Continues in Addressing Reforms to the 

Disaster Loan Program, GAO-12-253T (Washington D.C.: Nov. 30, 2011).

19GAO-09-755.

SBA Has Not 

Implemented Three 

Guaranteed Disaster 

Loan Programs 

Required by Law
Page 16 GAO-15-727T 

challenges and (2) feedback from lenders indicating that program 

requirements might hinder lender participation.

First, the electronic systems that would be used to process IDAP 

applications did not interface smoothly. According to SBA officials, IDAP’s 

readiness was in part based on the ability of E-Tran, the loan processing 

system for the 7(a) program, to interface with DCMS, the loan processing 

system for the Disaster Loan Program.20 Officials said that a new 

information technology system was being developed—SBA One. They 

also said that for IDAP application processing, it would be more efficient 

to make DCMS interoperable with the new system than to enhance 

E-Tran.21 At the time of our 2014 report, SBA anticipated that SBA One 

would be operational by early 2015.

Second, SBA told us that it received feedback from lenders on challenges 

that could discourage lenders from participating in the program, but 

documentation of the feedback was limited. In March 2010, SBA 

organized a forum with 11 lenders in the Gulf Coast to obtain their views 

on IDAP. Lenders stated the program had to have a simple eligibility 

determination and confirmation that a potential borrower had applied for 

an SBA disaster loan before the lender would approve an IDAP loan.22

Lenders also expressed concerns about the possibility of guarantee 

 20Section 7(a) of the Small Business Act, as amended, codified at 15 U.S.C. § 636(a). The 

7(a) program is intended to serve creditworthy small business borrowers who cannot 

obtain credit through a conventional lender at reasonable terms and do not have the 

personal resources to provide financing themselves. Under the 7(a) program, SBA 

guarantees loans made by commercial lenders to small businesses for working capital 

and other general business purposes.

21SBA One is described as an improved lending platform that will use one set of forms for 

all 7(a) loans; serve as a one-stop shop for all steps of the loan process, from determining 

eligibility through closing; and provide one data management system to measure and 

evaluate loan trends and performance. 

22If an applicant receives a direct disaster loan, the applicant must use the proceeds to 

repay the IDAP loan before using the proceeds for any other purpose. 15 U.S.C. § 

657c(n).
Page 17 GAO-15-727T 

denials if an applicant did not take out an SBA disaster loan.23 According 

to SBA, in 2010 the agency also conducted conference calls with Iowa

lenders who expressed similar concerns about IDAP. However, SBA did 

not document either the Gulf Coast forum or the conference calls at the 

time of the events. Instead, SBA officials relied on the memory of staff 

present for these discussions. In response to our request for information 

on these efforts, in July 2014 SBA provided a one-page summary. The 

summary included a list of the Gulf Coast lenders but not of Iowa lenders, 

and the discussion of lenders’ concerns was minimal.

In addition, according to SBA officials, in November 2012 the agency 

solicited informal feedback from lenders in Hurricane Sandy-affected 

areas about the usefulness of IDAP and its features. According to SBA 

officials, lenders were concerned about the statutory requirement that 

provides an applicant a minimum of 10 years to repay the IDAP loan if a 

loan through the Disaster Loan Program was not approved.24 Lenders 

expressed disinterest in servicing a small loan amount (up to $25,000) for 

a term that long. SBA officials noted that lenders typically did not offer 

small-dollar loans such as those made under IDAP. SBA’s IDAP 

regulations allow a lender to charge a borrower an optional application 

fee to recoup some of the loan processing costs, but the one-time fee 

may not exceed $250 and an IDAP lender generally may not charge a 

borrower any additional fees.25 According to SBA officials, they also did 

not document lender feedback from this outreach effort. SBA officials told 

us that they obtained feedback on IDAP requirements from three banks, 

although officials could recall the identity of only one bank.

 23If an SBA-guaranteed loan defaults, the lender must enter the guarantee purchase 

process by requesting that SBA honor the guarantee. During this process, SBA reviews 

whether the lender complied with the SBA loan authorization, SBA requirements, and 

prudent lending practices before making a decision to honor the guarantee. For more 

information on the guarantee purchase process, see SBA’s website, 

http://www.sba.gov/category/lender-navigation/steps-sba-lending/7a-loans/guaranty-purch

ase, accessed on June 29, 2015.

24If an applicant received an IDAP loan before being declined for a direct disaster loan 

(through the Disaster Loan Program), the applicant would be required to repay the loan 

not earlier than 10 years after the date of final disbursement. 15 U.S.C. § 657n(d)(2). SBA 

regulations state that the maturity of an IDAP loan must be at least 10 years from the date 

of final disbursement, but no more than 25 years. 13 C.F.R. § 123.703(d)(2).

25Lenders may charge a late payment fee not to exceed 5 percent of the scheduled IDAP 

loan payment, and reasonable direct costs for liquidation.
Page 18 GAO-15-727T 

In July 2014, SBA officials told us that the agency was still trying to 

conduct the IDAP pilot by attempting to identify solutions to increase 

lender participation. However, officials noted that the lenders with which 

they met were not willing to participate in IDAP (or an IDAP pilot) without 

changes to the statutory servicing term and the SBA regulatory fee. 

Based on lender feedback, SBA officials said that the current statutory 

requirements, such as the 10-year loan term, made a product like IDAP 

undesirable and that lenders were not likely to participate in IDAP unless 

the loan term were decreased to 5 or 7 years, for example. Congressional 

action would be required to revise statutory requirements, but SBA 

officials said they had not discussed the lender feedback with Congress. 

SBA officials also told us the agency planned to use IDAP as a guide to 

develop EDALP and PDAP, and until challenges with IDAP were 

resolved, did not plan to implement these two programs.

As a result of not documenting, analyzing, or communicating lender 

feedback, SBA might have lacked reliable information to guide its own 

actions and to share with Congress about what requirements should be 

revised to encourage lender participation. Such information could be 

obtained by conducting further outreach to lenders and documenting this 

outreach in accordance with federal internal control standards, which 

state that all transactions and other significant events should be promptly 

recorded to maintain their relevance and value to management in 

controlling operations and making decisions.26 We concluded that not 

sharing information with Congress on challenges to implementing IDAP 

might perpetuate the difficulties SBA faced in implementing programs 

intended to provide assistance to disaster victims. Therefore, in 

September 2014, we recommended that SBA conduct a formal 

documented evaluation of lenders’ feedback to inform both itself and 

Congress about implementation challenges and about statutory changes 

that might be necessary to encourage lenders’ participation in IDAP, and 

then report to Congress on the challenges SBA faced in implementing 

IDAP and on statutory changes that might be necessary to facilitate 

implementation.27

SBA officials recently provided us with a two-page summary of a 

discussion conducted with 23 lender and service provider participants in 

 26GAO/AIMD-00-21.3.1

27GAO-14-760
Page 19 GAO-15-727T 

SBA’s 7(a) program—17 bank lenders, 3 certified development 

companies, and 3 lender service providers—at a National Association of 

Government Guaranteed Lenders conference in October 2014.28

Participants were provided general information on IDAP, and were asked 

to comment on specific statutory and regulatory requirements related to 

loan terms, maximum allowable interest rates, and restrictions on lenderimposed application fees. According to SBA’s summary, participants 

expressed unwillingness to participate in a program with these 

requirements. While SBA thus has taken one step to solicit and document 

lender feedback, it has not adopted a plan for the steps the agency will 

take to implement IDAP (and by implication, the other two loan programs) 

or to reach a determination on whether IDAP or the other loan programs 

should be implemented.

Chairman Chabot and Ranking Member Velázquez, this concludes my 

prepared statement. I would be happy to answer any questions at this 

time.

For further information on this testimony, please contact William B. Shear 

at (202) 512-8678 or shearw@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this statement. GAO staff who made key contributions to this testimony 

are Marshall Hamlett (Assistant Director), Vaughn Baltzly (analyst-incharge), John McGrail, and Barbara Roesmann.

 28The association serves the needs of and represents the interests of the small business 

lenders that participate in SBA’s 7(a) loan program.

GAO Contacts and 

Staff 

Acknowledgments

(100153)
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