```
                                                                 
Small Business Administration: Response to September 11 Victims  
and Performance Measures for Disaster Lending (29-JAN-03,	 
GAO-03-385).							 
                                                                 
The September 11 terrorist attacks and subsequent federal action 
had a substantial impact on businesses in both the declared	 
disaster areas and around the nation. In the aftermath of the	 
attacks, the Congress, among other actions, appropriated	 
emergency supplemental funds to the Small Business Administration
(SBA) to aid September 11 victims. Given the uniqueness of this  
disaster and changes in the program, GAO analyzed SBA's lending  
to September 11 victims, as well as the loan program's		 
performance goals and measures. 				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-385 					        
    ACCNO:   A06022						        
  TITLE:     Small Business Administration: Response to September 11  
Victims and Performance Measures for Disaster Lending		 
     DATE:   01/29/2003 
  SUBJECT:   Disaster relief aid				 
	     Impacted area programs				 
	     Loans						 
	     Performance measures				 
	     Program evaluation 				 
	     Strategic planning 				 
	     Terrorism						 
	     Loan accounting systems				 
	     SBA Disaster Loan Program				 

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GAO-03-385

                                       A

Report to the Chairman, Committee on Small Business, House of
Representatives

January 2003 SMALL BUSINESS ADMINISTRATION Response to September 11
Victims and Performance Measures for Disaster Lending

GAO- 03- 385

Letter 1 Results in Brief 2 Background 4 SBA and the Congress Responded to
Small Businesses Affected by

the September 11 Attacks 7 Disaster Loan Program Performance Measures and
Plans Have Limitations 15

Conclusions 25 Recommendations 26 Agency Comments 26

Appendixes

Appendix I: Scope and Methodology 28

Appendix II: SBA Disaster Response, Loan Processing, and Loan Disbursement
Procedures 30

Appendix III: Regulatory and Statutory Changes to SBA*s Disaster Loan and
7( a) Program in Response to the September 11 Terrorist Attacks 31

Appendix IV: Data on SBA Disaster Loans Made to Victims of September 11
Terrorist Attacks 33 SBA Responds to Multiple Disaster Areas 33

Appendix V: Comments from the Small Business Administration 40 Tables
Table 1: GPRA Requirements for Agency Strategic Plan, Performance Plan,
and Performance Report 6

Table 2: Performance Measures for the Disaster Loan Program and Percentage
Achieved 16 Table 3: Comparison of Selected Elements of Recent Disaster
Loan

Program Performance Plans and Reports 24 Figures Figure 1: Geographic
Distribution of SBA September 11 Loan

Disbursement 9 Figure 2: SBA September 11 Business Loan Disbursements, by

Industry 10 Figure 3: Timeline of SBA and Congressional Modifications to
the

Disaster Loan Program 11 Figure 4: Immediate and Contiguous Disaster Areas
for September

11 Terrorist Attacks 34

Figure 5: Distribution of SBA September 11 Loans, by Declaration Area 37
Figure 6: September 11 Business Loan Disbursements, by

Declaration and by Industry 39

Abbreviations

ALCS Automated Loan Control System DAO Disaster Area Office EIDL Economic
Injury Disaster Loan FEMA Federal Emergency Management Agency GPRA
Government Performance and Results Act HELOR Home Expedited Loan Officer
Report IRS Internal Revenue Service ODA Office of Disaster Assistance
NAICS North American Industry Classification System OMB Office of
Management and Budget SBA Small Business Administration STAR Supplemental
Terrorist Activity Relief

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Letter

January 29, 2003 The Honorable Donald A. Manzullo Chairman, Committee on
Small Business House of Representatives

Dear Mr. Chairman: An important part of the mission of the Small Business
Administration (SBA) is to make loans to help individuals and small
businesses recover from disasters. 1 In fiscal year 2002, SBA approved
about 22,000 disaster assistance loans totaling $1.3 billion through its
Disaster Loan Program. Approximately $1 billion of that total was for
loans SBA made in response to the September 11 terrorist attacks. SBA
reports on its performance in fulfilling its mission, including the
performance of its Disaster Loan

Program, through annual performance reports, which measure performance
toward achieving goals SBA sets for its various programs. The documents
and measures SBA includes can help the Congress monitor and direct SBA*s
performance in responding to disasters.

The needs of small businesses and SBA*s response in the wake of the
September 11 disaster were the subject of hearings by your committee. At
your request, we previously provided your committee with a report on
overall assistance to small businesses in the Lower Manhattan area after
September 11. 2 Subsequently, you asked us to provide you with information
specifically on disaster assistance SBA provided after the terrorist
attacks. This report responds to your request that we review and analyze
(1) SBA*s response to the September 11 terrorist attacks and (2) SBA*s
performance plans and measures for its Disaster Loan Program.

In conducting our review, we obtained and analyzed SBA*s data on disaster
assistance loans made through September 30, 2002, documents related to
disaster lending policy and procedures, and documents related to Disaster

1 SBA*s other mission responsibilities are to maintain and strengthen the
nation*s economy by aiding, counseling, assisting, and protecting the
interest of small businesses. As of September 30, 2001, SBA had a total
portfolio of about $44 billion, including $39 billion in direct and
guaranteed small business loans and other guarantees and $5 billion in
disaster loans.

2 See U. S. General Accounting Office, September 11: Small Business
Assistance Provided in Lower Manhattan in Response to the Terrorist
Attacks, GAO- 03- 88 (Washington, D. C.: Nov. 1, 2002).

Loan Program planning and performance measurement. We also interviewed SBA
officials from headquarters and each of the four SBA Disaster Area Offices
(DAO). See appendix I for a detailed description of our scope and
methodology. We conducted our work between June 2002

and January 2003 in accordance with generally accepted government auditing
standards.

Results in Brief The needs of small businesses after the September 11
terrorist attacks presented SBA*s Disaster Loan Program with new and
difficult challenges.

In the weeks following the attacks, government actions, such as closing
airports, and consumer responses, such as decreased travel, caused
widespread economic injury. Therefore, rather than being concentrated in

one affected area, small businesses needing assistance were spread
throughout the country. SBA responded to their needs by extending
eligibility for economic injury disaster loans nationwide. By the end of
fiscal year 2002, the agency worked with individuals and businesses in all
50 states, the District of Columbia, and U. S. Territories, approving
9,700 loans totaling $966 million. Throughout this process, SBA tried to
respond to the concerns of small businesses, many of which were raised in
congressional hearings, by modifying both the terms of its Disaster Loan

Program and its lending practices. For example, SBA expedited loan
disbursements by decreasing the amount of documentation borrowers had to
provide. The Congress also played a pivotal role in responding to the
needs of affected small businesses by providing supplemental
appropriations that allowed SBA to provide larger loans to a broader
population of September 11 victims. Our analysis of SBA loan data revealed
that the distribution of September 11 lending differed significantly from
lending for previous disasters. Not only were loans made nationwide, but

also almost all were made to address economic injuries to businesses
rather than physical damage to homes.

SBA*s Disaster Loan Program performance measures do not fully reflect the
program*s actual performance because of limitations in the agency*s
performance measures and plans. We and SBA*s Inspector General

previously identified a number of shortcomings in SBA*s performance plans

and measures that have persisted since September 11. 3 First, two of SBA*s
six performance measures assess only one discrete step in the loan
application and disbursement processes. Second, some output measures

have not kept up with SBA*s actual progress in assisting disaster victims.
4 For example, the goal for timeliness in processing disaster loans is 21
days, when the actual time required for processing averaged 13 days in
fiscal year 2001 and 12 days in fiscal year 2002. Third, proxies SBA uses
for two measures do not accurately represent what is being measured. For
example, SBA uses number of loans approved for individuals and businesses
(output measures) as proxies for number of homes and businesses restored
to predisaster condition (an intended outcome measure). Fourth, we
identified numerous features in SBA*s description of its Disaster Loan
Program in the 2002 and 2003 performance plans that make assessing the
agency*s progress in attaining its strategic goals

difficult. For example, despite guidance recommending that program goals
be outcome- oriented, SBA changed its 2003 performance goal to an
outputoriented one. This report makes three recommendations to SBA to
improve its

performance measures and the disaster section of its performance plan. We
obtained written comments on a draft of this report from SBA*s Associate
Administrator for Disaster Assistance. SBA generally agreed with our
recommendations and said that it intends to review the existing
performance measures and research new ways to evaluate program impact.

3 See U. S. General Accounting Office, Managing for Results: Opportunities
for Continued Improvement in Agencies Performance Plans, GAO/ GGD- 99- 215
(Washington, D. C.: July 20, 1999); Small Business Administration: Status
of Achieving Key Outcomes and Addressing Major Management Challenges, GAO-
01- 792 (Washington, D. C.: June 22, 2001); and Final Audit Report *
Results Act Performance Measurement for the Disaster Assistance Program,
Small Business Administration, Office of the Inspector General, Audit
Report Number: 1- 06 (Feb. 15, 2001). 4 According to Office of Management
and Budget guidance, outputs are the level of activity that can be
produced or provided over a given period of time or by a specific date.
Outcomes are the intended results, effects, or consequences that occur
from carrying out program activities. See the Office*s Preparation and
Submission of Strategic Plans, Annual Performance Plans, and Annual
Program Performance Reports, Circular No. A- 11, Part 6 (Washington, D. C:
June 2002).

Background When disasters such as floods, tornadoes, or earthquakes
strike, federal, state, and local government agencies coordinate to
provide assistance to

disaster victims. SBA, through its Disaster Loan Program, is part of this
concerted effort. In the event of a disaster, SBA, the Federal Emergency
Management Agency (FEMA), and other government agencies join together to
conduct a preliminary damage assessment to estimate the physical

damage of the disaster on the affected region. Among other criteria, if
there is extensive physical damage, 5 the governor of the affected state
can request that the U. S. President declare that a major disaster or
emergency situation exists, in which case federal assistance is made
available to

disaster victims, and FEMA takes the lead in coordinating response and
recovery efforts. The presidential disaster declaration specifies the area
that is eligible for federal assistance, referred to as the *immediate*

disaster area in this report. In addition, SBA provides certain loans to
disaster victims in the counties adjacent to the immediate area; we refer
to these counties as the *contiguous* disaster area. In the immediate area
of

the disaster, homeowners, renters, nonprofit organizations, and nonfarm
businesses of all sizes are eligible to apply for SBA loans for the repair
and replacement of uninsured physically damaged property. 6 In both the
immediate and contiguous areas of the disaster, small businesses with no
credit available elsewhere are eligible to apply for loans to cover
economic losses.

Once a declaration has been made, officials from one of SBA*s four
Disaster Area Offices* located in California, Georgia, New York, and
Texas* arrive at the disaster site to begin making preparations to serve
disaster victims. According to SBA*s procedures, disaster loan officials
secure office space* sometimes in FEMA- operated Disaster Recovery Centers
for presidential declarations* and begin meeting with victims to explain
the disaster loan

5 If there is moderate physical damage, the governor of the affected state
can request a disaster declaration by the SBA Administrator, making both
physical damage and economic injury loans available to disaster victims.
If there is minor physical damage, the governor of the affected state may
certify the economic injury stemming from an event and request an SBA
disaster declaration. In the case of a natural disaster such as a drought,
the governor may request a disaster declaration by the Secretary of the
United States Department of Agriculture based solely on the agricultural
production losses, in which case SBA*s declaration limits the economic
injury loans to the economic effect of these agricultural

losses. For governor- certified and Agricultural declarations, SBA only
provides economic injury loans. 6 In this report, homeowners and renters
will be referred to as *households* and nonprofit

organizations and nonfarm businesses will be referred to as *businesses.*

process, issue loan applications, and, if requested, assist victims in
completing applications. Appendix II summarizes the series of steps
involved in accepting, reviewing, approving or declining, and disbursing
disaster loans. SBA provides loans to households and businesses without
credit available

elsewhere at a maximum rate of 4 percent and up to a 30- year term. For
households or businesses with credit available elsewhere, SBA provides
loans at a maximum rate of 8 percent and, for businesses, up to a 3- year
term. Business loans are available up to $1.5 million, 7 loans for
physical damage to homes are available up to $200,000, and loans for the
repair or replacement of personal property are available up to $40,000.

Like other federal programs, the performance of SBA*s Disaster Loan
Program is reported in accordance with the Government Performance and
Results Act (GPRA) of 1993. 8 The purpose of GPRA is to shift the focus of
federal management and decisionmaking from a preoccupation with the

number of tasks completed or services provided to the real differences the
tasks or services make to the nation or individual taxpayer. GPRA requires
agencies to set multiyear strategic goals in their strategic plans and
corresponding annual goals in their performance plans, measure performance
toward the achievement of those goals, and report on their progress in
their annual performance reports. 9

The strategic plans, which cover a period of at least 5 years, are the
starting point in setting annual goals for programs and in measuring
progress toward achieving those goals. Final annual performance plans,
first required for fiscal year 1999, are sent to the Congress soon after
the transmittal of the President*s budget, and provide a direct linkage
between an agency*s longer- term goals and mission and day- to- day
activities. Related annual performance reports describe the degree to
which

performance goals were met. According to Office of Management and Budget
(OMB) guidance, strategic goals, and performance goals in annual

7 Even if a business receives a loan to cover both physical damage and
economic injury, the total loan amount generally cannot exceed $1.5
million. 8 P. L. 103- 62, GPRA 1993.

9 The Office of Management and Budget provides guidance to federal
agencies on developing these plans in Preparation and Submission of
Strategic Plans, Annual Performance Plans, and Annual Program Performance
Reports, Circular No. A- 11, Part 6 (Washington, D. C: June 2002).

plans may be identical. According to GPRA, if a performance goal becomes
impractical or infeasible to achieve, the agency is to explain in the
performance reports why that is the case and what legislative, regulatory,
or other actions are needed to accomplish the goal, or whether the goal
ought to be modified or discontinued. Table 1 lists GPRA requirements for

each of these documents.

Table 1: GPRA Requirements for Agency Strategic Plan, Performance Plan,
and Performance Report

5* year strategic plan Annual performance plan Annual performance report

 Identify the agency*s  Specify annual

 Compare performance data mission and long- term

performance goals for for the previous fiscal year with strategic goals.

each program activity. the goals in the annual

performance plan.  Describe how the

 Identify the performance agency will achieve the

measures the agency will  Describe plans for meeting goals through its

use to assess its unmet goals or explain why a

activities and resources. progress.

goal should be modified.  Describe how the

 Describe the strategies  Summarize findings of agency*s annual

and resources required to program evaluations

performance goals are achieve the performance completed during the fiscal
related to its long- term goals. year. goals.

 Describe how the data  Identify factors external

will be verified to ensure to the agency that could

accuracy and validated to affect goal achievement.

avoid significant bias.  Describe program

evaluations used in establishing or revising the goals and include a
schedule of future evaluations. Source: GAO. Both the strategic plan and
the performance plan describe the relationship between a program*s goals,
outputs, and outcomes. As noted previously, according to OMB guidance,
outputs are the level of activity that can be produced or provided over a
given period of time or by a specific date.

Outcomes are the intended results, effects, or consequences that occur
from carrying out program activities. In the case of the Disaster Loan
Program, SBA has described the outputs as disaster loans to individuals
and businesses, while program outcomes include restored housing and

increased survival of businesses. OMB guidance allows agencies to divide
outcomes into two categories: end and intermediate outcomes. End outcomes
are the results of programs and activities compared to their intended
purpose. Intermediate outcomes show progress toward achieving end
outcomes. These outcomes are often required for programs when end outcomes
are not immediately clear, easily delivered, or quickly achieved.

OMB guidance indicates that performance plans should include measures of
outcomes when the outcomes can be achieved during the fiscal year covered
by the plan. Otherwise, the guidance recognizes that the performance plans
will predominantly include measures of outputs rather

than outcomes. In addition to OMB guidance, SBA program managers can
obtain guidance in the preparation of performance goals and measures from
GAO, 10 and more recently, from an SBA primer. 11

SBA and the Congress In the weeks and months following the terrorist
attacks, SBA and the

Responded to Small Congress faced the challenge of responding to the
lingering effects of the

attacks and subsequent federal actions on small businesses throughout the
Businesses Affected by

country. SBA responded first in Lower Manhattan, meeting with potential
the September 11

borrowers within 2 days of the attacks. Its response expanded as areas
Attacks

near the site of the attack on the Pentagon and more of the New York City
area were designated disaster areas. Ultimately, SBA helped small
businesses around the country with disaster lending. After small
businesses raised concerns about the Disaster Loan Program*s ability to
help businesses recover from the attacks, SBA and the Congress modified
the program, raising loan limits and deferring interest payments,
expanding eligibility for economic injury loans to small businesses around
the country, modifying its size standards for small businesses, expediting
its loan approval and disbursement processes, and providing translators
for loan applicants. By the end of fiscal year 2002, SBA approved more
than 9, 700 loans for a total of $966 million to assist in the recovery
efforts of September 11 victims nationwide. 10 See, for example, U. S.
General Accounting Office, Executive Guide: Effectively Implementing the
Government Performance and Results Act, GAO/ GGD- 96- 118 (Washington, D.
C.: June 1, 1996) and Performance Plans: Selected Approaches for

Verification and Validation of Agency Performance Information, GAO/ GGD-
99- 139 (Washington, D. C.: July 30, 1999). 11 Small Business
Administration, Performance Indicators & Data Quality* A Primer,

(Washington, D. C.: July 2001).

SBA*s Response Covered SBA*s response to the terrorist attacks began
September 11, when SBA

Small Businesses officials arrived in Lower Manhattan to begin
coordinating the agency*s Nationwide

efforts. The President declared the attack on the World Trade Center a
major disaster area on September 11. Unlike most of the disasters SBA had
been involved in, the economic effects of the terrorist attacks were felt
throughout the country. SBA*s initial disaster area in New York City and
New Jersey eventually expanded to include additional counties in New

York, New Jersey, Connecticut, Massachusetts, and Pennsylvania. On
September 21, the President declared the Pentagon attack as a major
disaster, establishing counties Maryland and Virginia and parts of the
District of Columbia as disaster areas. As the United States began to
deploy military personnel in response to the terrorist attacks, small
businesses

nationwide affected by the loss of employees called up as military
reservists were eligible to apply for a disaster loan under the Military
Reservist Economic Injury Disaster Loan (EIDL) program. 12 As discussed
later in this report, small businesses across the nation that were
adversely affected by the lingering effects of the attacks and subsequent
government action, such as airport closings and the precipitous drop in
tourism, were also eligible to receive disaster loans under SBA*s Expanded
EIDL program. In essence, the entire country was deemed a disaster area.

As shown in figure 1, more than half the loans went to small businesses
outside the area of the attack sites in New York City and at the Pentagon,
with businesses in Florida and California receiving the second and third

largest share of loans. In general, businesses beyond the immediate sites
of the attacks received slightly more than those close by, in part because
these businesses did not have the additional resources available to them
that were available in New York City. As shown in figure 2, the loans were
spread among industries, with no single type of business accounting for

most of the funds. The manufacturing sector received the largest amount of
funds. Other major industries receiving the most loan funds were
professional, scientific, and technical services; transportation and
warehousing; wholesale trade; and accommodation and food services. 12 The
Military Reservist EIDL program is available even in the absence of a
disaster declaration. The program is available to small businesses anytime
the government calls military reservists to duty.

Figure 1: Geographic Distribution of SBA September 11 Loan Disbursement

45% N. Y.

4% N. J.

3% Va.

6% Cal.

11% 3%

Fla. Tex .

Dollars in millions

$100 to $400 $50 to $100 $20 to $50 $10 to $20 Less than $10 Source: GAO
analysis of SBA data.

Figure 2: SBA September 11 Business Loan Disbursements, by Industry

Other (retail trade; administrative, support, waste management, and
remediation services; etc.) Accommodation and food services

9% 10%

Wholesale trade

36% 12%

Transportation and warehousing

16%

Professional, scientific,

17%

and technical services Manufacturing Source: GAO analysis of SBA data.

By the end of fiscal year 2002, SBA approved more than 9,700 home and
business loans totaling $966 million for victims of the September 11
attacks. The agency expects to disburse $924 million* or 96 percent of the
amount approved* due to loan increases, decreases, and cancellations.
Individual loan disbursement amounts range from $300 to $1.5 million.
Eleven percent of September 11 loan disbursements were for $50, 000; the
most frequently disbursed amount. Appendix IV presents more details on

SBA*s September 11 disaster lending. SBA and the Congress

In the weeks and months following the terrorist attacks, small business
Modified the Disaster Loan

owners complained to the Congress about SBA*s Disaster Loan Program.
Program in Response to Small business owners* complaints, which SBA
officials regarded as

Complaints from Small valuable feedback, involved issues such as: (1) the
effect of the attacks on

small businesses nationwide, (2) SBA*s communication with applicants
Businesses

with low English proficiency, (3) size standards for small businesses, (4)
the loan underwriting criteria, and (5) the time required to receive loan
approval. These complaints prompted SBA and the Congress to make several
modifications to the Disaster Loan Program for September 11 victims, which
we discuss in the following sections. Figure 3 provides a

timeline of those changes; see appendix III for a summary of regulatory
and statutory changes.

Figure 3: Timeline of SBA and Congressional Modifications to the Disaster
Loan Program

Small businesses complained that eligibility for SBA loans was limited to
firms located within the declared disaster areas, yet the September 11
terrorist attacks had caused economic injury to small businesses

nationwide. Small business owners from across the nation, representing
small airports as well as aircraft maintenance, travel, and tourism firms,
reported losses in revenue as a result of the attacks, which forced them
to furlough and/ or terminate numerous employees. These small businesses
identified SBA as a potential source of assistance to help them recover
from the economic injury caused by the attacks.

In response to these concerns, in October 2001, SBA issued regulations to
make economic injury disaster loans available to small businesses
nationwide, an unprecedented change to the Disaster Loan Program,
according to SBA officials. SBA*s Expanded EIDL program enabled

businesses outside the declared disaster areas to apply for loans to meet

ordinary and necessary operating expenses that they were unable to meet,
due to the attacks or related action taken by the federal government
between September 11 and October 22, 2001.

Small businesses in New York City also complained that the application
process was particularly confusing and time- consuming for applicants with
low English proficiency. To address these concerns, SBA printed
informational packets in other languages, such as Spanish and Chinese, and
also provided multilingual staff on- site who could speak Mandarin
Chinese, Croatian, Arabic, and Spanish and was prepared to send employees
with additional language capabilities to New York City.

Small businesses, such as travel agencies, also argued that existing size
standards* guidelines used to determine whether a firm was a small
business on the basis of its annual revenue or number of employees* were
overly restrictive. In February 2002, SBA modified the size standards for
all September 11 loan applicants, allowing them to take advantage of
recent inflation- based adjustments. 13 In addition, in March 2002, SBA
increased the threshold specifically for travel agencies adversely
affected by the attacks from $1 million to $3 million annual revenues. In
July 2002, SBA began to apply this increased size standard to all travel
agencies, not just those affected by the terrorist attacks. In commenting
on a draft of this report, SBA officials noted that the agency planned to
increase the size standard for travel agencies generally, but applied that
change sooner for travel agencies affected by the attacks.

Small businesses affected by the terrorist attacks also complained that
SBA*s underwriting criteria were too restrictive. For example, two small
business owners objected to SBA*s requirement for collateral for their
loans. They testified that SBA withdrew their applications because they
would not use their homes as collateral. They argued that it was too risky
to use their homes as collateral, especially since the survival of their

businesses was uncertain. A New York Small Business Development 13 In
January 2002, SBA increased the revenue- based thresholds for determining
the size of business by the rate of inflation. In February 2002, SBA
retroactively applied the inflationadjusted size standards to all
businesses applying for September 11 loans. Thus, more businesses could
apply for loans. See appendix III for details.

Center 14 official also questioned the appropriateness of SBA*s disaster
loan underwriting criteria. He said that SBA should account for the
location of the businesses affected by the attacks* New York City* where
some factors relating to the high cost of doing business fall outside the
norms.

While SBA approved millions of dollars in loans, 52 percent of the loan
applications were withdrawn or declined. SBA officials said that the
agency makes every effort to approve each application by applying more
lenient credit standards than private lenders. However, the officials said
that they adhered to their credit standards to minimize losses and program
costs.

SBA data indicate that the 52- percent rate for withdrawing and declining
September 11- related loan applications was not out of line when compared
with other disasters, or with private lenders. By comparison, one bank in
New York City reported a 42- percent decline rate for September 11-
related loans, while another bank reported an 80- percent decline rate.
The primary reasons SBA identified for withdrawing September 11 loan
applications was that no Internal Revenue Service (IRS) record, which
could provide independent documentation of the applicants* income, was
found, and the applicant failed to furnish additional information
requested by SBA. According to SBA officials, the most common reasons for
declining

September 11 loan applications were the applicant*s inability to repay the
loan and unsatisfactory credit. According to SBA, these are also the
primary reasons that nearly two- thirds of all SBA disaster loan
applications

in fiscal year 2001 were withdrawn or declined by SBA. Applicants
complained that the elapsed time between submitting an application and
loan approval was too long. SBA responded to these complaints by
implementing procedures in October 2001 to expedite two stages of the
process - loan application processing and disbursement of loan funds. To
expedite loan processing, loan officers calculated economic injury loan
amounts based on the applicant*s annual sales and gross margin, instead of
conducting a more extensive needs analysis. As of the end of fiscal year
2002, on average, SBA processed September 11 business loans in 13 days,
compared with 16 days for disaster assistance business

14 SBA administers the Small Business Development Center program to
provide management assistance to current and prospective small business
owners. The Centers offer one- stop assistance to small businesses by
providing information and guidance in central branch locations. The
program is a cooperative effort of the private sector, the educational
community, and federal, state, and local governments. According to SBA,
the program enhances economic development by providing small businesses
with management and technical assistance.

loans processed in fiscal year 20. 15 To expedite disbursement of funds to
September 11 victims in the World Trade Center and Pentagon disaster
areas, SBA decreased the amount of documentation needed to disburse up to
$50, 000. Last, the Niagara Falls DAO made extensive use of printing
selected loan documents in the field, enabling field staff to schedule
loan closings within 1 or 2 days of the loan approval. SBA made initial

September 11 loan disbursements within about 2 days of receipt of closing
documents, compared with 3 days for initial disbursements for other
disaster assistance loans, according to agency officials. See appendix II
for a summary of the steps in processing SBA disaster loans.

Despite SBA*s efforts to be responsive to the needs of small businesses
affected by the terrorist attacks, business owners testified that SBA*s
existing disaster program did not have the ability to provide adequate
loans to small businesses within the declared disaster areas. In January
2002, the Congress enacted supplemental appropriations to SBA for $150
million and

made several changes in the disaster loan program specifically for small
businesses affected by the September 11 attacks. 16 The changes included
raising the maximum loan amount from $1.5 million to $10 million and
deferring payments and interest accrual for 2 years.

The Emergency Supplemental Act of 2002 also created the Supplemental
Terrorist Activity Relief (STAR) Program that provided assistance to small
businesses affected by the terrorist attacks through the 7( a) loan
guaranty program, which is not part of the Disaster Loan Program. The 7(
a) program

is intended to serve small business borrowers who cannot otherwise obtain
financing under reasonable terms and conditions from the private sector.
Under this program, private- sector lenders provide loans to small
businesses, which are guaranteed by SBA. Under the STAR program, SBA
reduced the on- going fee charged to lenders on new 7( a) loans from 0.50
percent of the outstanding balance of the guaranteed portion of the loan
to 0.25 percent. Although the fee reduction for lenders is the key feature
of the

15 According to Niagara Falls DAO officials, other factors may have also
contributed to faster loan processing time for September 11 loans. For
example, in fiscal year 2001, at least 80 percent of loan applicants
sustained physical losses, and it took SBA an average of 6 days for the
officials to verify the losses for each physical loan application. In
contrast, only about 9 percent of the September 11 loan applications
received by the area office required

loss verifications. Moreover, SBA could not conduct loss verifications for
businesses located in the World Trade Center since their place of business
was destroyed.

16 Emergency Supplemental Appropriations for Recovery and Response to
Terrorist Attacks on the United States Act, 2002 P. L. 107- 117 (Emergency
Supplemental Act of 2002).

STAR program, SBA officials anticipate that by making 7( a) loans more
cost- effective for lenders, lenders will, in turn, make more small
business loans and share the cost savings with their borrowers. As of the
end of fiscal year 2002, SBA guaranteed about 4,700 STAR loans for $1.8
billion.

(See app. III for a comprehensive list of modifications made to SBA*s
Disaster Loan Program for September 11 victims.)

SBA officials believed that many of the complaints about the disaster
program resulted from the mismatch between victims* expectations of SBA*s
disaster program and the nature of the program. For example, when some
victims were told that they could receive *assistance* from SBA, they
assumed that the assistance would be in the form of grants instead of
loans. SBA officials noted that the media usually does not draw
distinctions among

FEMA grants, SBA loans, and other forms of assistance available. SBA
officials told us that they tried to minimize the public confusion about
the nature of the assistance available from SBA by working closely with
the media and public officials so that disaster victims would receive
accurate information about SBA assistance.

Disaster Loan Program As stated earlier, the strategic plan describes the
multiyear strategic goals.

Performance Measures The performance plans describe the corresponding
annual performance

goals and the measures or indicators that will be used to assess progress
in and Plans Have

meeting them. During the past several years, we 17 and SBA*s Inspector
Limitations

General 18 have reviewed SBA*s performance plans and found the plans had
significant limitations. Our review of the disaster lending portion of the
2003 performance plan found that the limitations identified in the
previous reviews remain. We attribute some of these limitations to the
specific nature of the measures SBA uses to describe the performance of
the disaster lending program, while other limitations can be attributed to
the description of program*s performance in the plan itself.

Limitations in the In the past 5 years, SBA has used nine different
measures to assess the

Performance Measures performance of the Disaster Loan Program. Both we and
SBA*s Inspector

General have raised numerous concerns about these various measures in 17
GAO/ GGD/ AIMD- 99- 215 and GAO- 01- 792. 18 SBA OIG, Audit Report Number:
1- 06.

the past. The Inspector General found that SBA used inconsistent and
subjective measures, and we found that the document used to report program
performance to the Congress lacked key information that would have
provided a more accurate picture of both the Disaster Lending Program*s
performance measures and the results. We observed in our June 2001 report
that SBA needed to improve the quality of the measures that it used to
assess its performance. 19

On the basis of our review of the 2003 performance plan, we have found
that, as a group, the measures SBA currently uses to assess performance*
the current measures (table 2, measures 4 to 9) continue to have numerous
limitations, despite the guidance provided in SBA*s performance primer.
First, the three output measures do not capture the notable progress the
program has made in improving its loan processing; improvements that
ultimately benefit disaster loan applicants and borrowers, such as better
staffing processes and management of staff duties. Second, two of the
three outcome measures are actually output measures and the third* a
customer survey* has an important limitation. Third, other than the
customer survey, SBA does not have measures to assess the intermediate or
end outcomes of its Disaster Lending Program. Table 2: Performance
Measures for the Disaster Loan Program and Percentage Achieved

FY FY

FY FY

FY Performance measures 1998 1999 2000 2001 2002

Past measures

1. Disaster Home Loan Currency a

Rate

Target 94% 95%

88%

Actual 95% 87

2. Disaster Home Loan Delinquency Rate

Target

a

2% 2%

Actual 2% 2% a

3. Underwriting Compliance Rate

Target

a a

97% 97%

Actual 97%

97% 97% a

19 GAO- 01- 792.

(Continued From Previous Page)

FY FY

FY FY

FY Performance measures 1998 1999 2000 2001 2002

Current measures

4. Field presence within 3 days of declaration Target 97%

98% 98%

98% 98%

Actual 100% 100% 100% 100% 100% 5. Loans processed within 21 days

Target 90%

80% 70%

80% 80%

Actual 77% 60% 91% 94% 94% 6. Customer Satisfaction Rate

Target

a a

81% b

80% 80%

Actual 97%

97% 81% a a Homes restored to pre- disaster conditions

(Actual measure: Number of home loans approved)

Target 31, 853

Actual a Businesses restored to predisaster conditions (Actual measure:
Number of business loans approved)

Target 7,011

Actual a 9. Initial loan disbursements within 5 days of receiving the
closing documents

Target 95%

Actual 94% Sources: SBA performance plans and reports, SBA officials, and
GAO calculations. a Information not reported in SBA documents.

b The 2001 Performance Plan did not list this measure, but the 2001
Performance Report indicated that the target was 81 percent. Three Output
Measures Do Not Officials from SBA*s Disaster Area Offices questioned
whether the three Capture Progress

output measures* field presence within 3 days of a disaster declaration,
processing loan applications within 21 days, and disbursing initial loan
amounts within 5 days of receiving the closing documents* were

appropriate indicators of timely service to disaster victims since they
did not, for example, capture recent program improvements. SBA has had a
98- percent success rate in meeting the target for establishing a field
presence each fiscal year since 1998. In light of this fact, one official
characterized this measure as artificial and noted that it does not drive
staff to improve their performance. Officials from the area offices said
that improvements in planning, interagency coordination, and technology
now can enable them to have staff onsite and preparing to assist disaster
victims within 1

day of a disaster declaration. For example, field coordinators in two
offices recently developed a database that tracks the level of staffing
and other resources used to respond to various types of disasters. The
coordinators used this information to help them more efficiently determine
the resources required to respond to new disasters. Such preparedness
enabled SBA officials to be in Lower Manhattan preparing to serve disaster
victims the same day as the September 11 attacks. According to DAO staff,
if there are delays in establishing a field presence, it is generally
because SBA is waiting for decisions from state officials. SBA data and
comments from DAO officials raise questions about the

appropriateness of the second output measure* processing loan applications
within 21 days of receipt (table 2, measure 5). One official suggested
that providing timely, or well- timed, assistance does not always mean
providing assistance in the shortest period of time. Rather, providing
timely assistance means providing it when the disaster victims need it.
While the 21- day measure does capture the elapsed time for multiple loan
processing steps, the current target for this measure does not reflect
improvements in past performance. The target was set at 70 percent for
fiscal year 2000 and 80 percent for fiscal year 2001, and SBA*s
performance significantly exceeded this target each year. Moreover, the
actual time required for processing averaged 13 days in fiscal year 2001
and 12 days in

fiscal year 2002. In fiscal year 2001, as indicated earlier, SBA*s average
processing time for business loans was about 16 days. Home loans, which
according to DAO officials are less complex, were processed during this
period in an average of about 12 days. According to SBA data, the average
processing time for both business and home loans improved in fiscal year
2002. The average loan processing time for business loans in fiscal year
2002 was about 13 days. The average time required to process the September
11 business loans was also about 13 days. The average

processing time for the simpler home loans in fiscal year 2002 was about
10 days. Thus, SBA exceeded its performance target for both of these
measures in fiscal year 2002. DAO officials attributed their faster
processing times to several agencywide improvements that have expedited
loan processing. For example, in the past SBA relied on hiring new and
previously employed temporary staff to help permanent personnel to process
loans. This strategy required DAO staff to train significant numbers of
new temporary staff on SBA loan processing procedures, with each new
disaster. In 2000, SBA implemented the Disaster Personnel Reserve Corps.
Each DAO now has a list of reserve corps members who are already trained
in SBA

procedures and potentially available to assist in responding to disasters.
According to DAO staff, utilizing the corps members enables SBA to
potentially expedite processing by allowing temporary staff to begin
processing loans immediately, because reservists are recruited and trained
prior to the occurrence of the disaster. According to one DAO official,
using

the reserve corps helped her office attain the 21- day processing goal in
fiscal year 2001. DAO staff also attributed faster loan processing to
increased automation. Although, according to DAO staff, calculations to
determine an appropriate loan amount are made electronically for all
loans, some steps in loan processing are conducted manually. In 2000, SBA
established the Home Expedited Loan Officer Report (HELOR) system so that
loan decisions for home and personal property loans under $25,000 can be
made automatically, based primarily on credit scores, rather than manually
by the loan officer. 20 DAO staff also cited DAO- level strategies that
have expedited processing locally. For example, in the past, DAO staff who
inspected a victim*s property to estimate the amount of property loss,
referred to as loss

verifiers, manually completed report forms and submitted the reports to
the DAOs using a courier service. In 2002, one DAO pilot tested having
their loss verifiers complete their inspection reports in the field using
hand- held computers and submit their reports to DAO using electronic
mail. One DAO official estimated that this automated approach reduced loan
processing time and eliminated courier service expenses.

In 2002, SBA began reporting data on the third output measure* ordering
initial disbursements within 5 days of receiving closing documents (table
2, measure 9). Yet, DAO staff suggest that the target for this measure
also

does not reflect past performance and was set at a low threshold.
According to DAO staff, before 2002, SBA had an internal goal of ordering
disbursements within 3 days of receiving closing documents. When SBA
included this measure in the performance plan, the disbursement target was
increased to 5 days. SBA headquarters officials commented that the 5- day
standard was set to accommodate counting weekend and holidays because the
data system SBA uses to track disaster loan processing could not
distinguish between workdays and non- workdays. Nonetheless, DAO officials
are accustomed to the stricter 3- day standard, they indicated that

20 The expedited procedure for processing home loans is used only to
approve loans. If this procedure indicates that the loan should be denied,
the loan officer must use the standard procedure for processing home
loans.

the 5- day standard can be met with ease. For example, SBA made the
initial disbursements on all approved September 11 loans in an average of
about 2 days, and in fiscal year 2002, on average, SBA also made initial
disbursements within an average of 2 days of receipt of closing documents.
Moreover, according to one DAO official, the disbursement target was

increased as DAOs were expediting their disbursement process. For example,
as part of its response to September 11 borrowers, the Niagara Falls DAO
reduced the amount of documentation required for September 11 victims from
the World Trade Center and Pentagon disaster areas to receive
disbursements of between $25, 000 and $50, 000, so that the DAO could more
quickly disburse the remaining amounts. Since they found this

strategy to be successful, the DAO official will recommend to his
supervisors that this procedure be used for all future disasters. However,
because the 5- day disbursement measure focuses only on the initial

disbursement, it cannot capture other improvements that have been made to
the multistep disbursement process.

In commenting on a draft of this report, SBA indicated that the output
measures were established based on what was determined to be a reasonable
level of service based on an average year taking into account the amount
of resources required. Because of the unpredictability of disasters,
officials did not think it would be feasible to adjust production levels
simply based on 1 year*s performance. In addition, they noted that large
disasters could still generate more volume than SBA could handle quickly,
especially if the pre- disaster staffing levels in all area offices were
low and a

large- scale recruitment and training effort were necessary. Even with
some of the program improvements, they believed it would be very difficult
and costly to maintain such levels during periods of multiple major
disasters. Although SBA acknowledged that there may be a basis for
modifying the output measures mentioned (effective field presence,
processing loan applications in 21 days, and ordering initial
disbursements within 5 days of loan closing), the officials believed that
the modifications in the measures should be based on an average level of
projected activity taking into consideration some of the permanent
improvements they have made to the

program. Two Out of Three Outcome SBA officials indicated that the
remaining three measures* number of Measures Actually Assess

homes restored to predisaster condition, number of businesses restored to
Outputs

predisaster condition, and customer satisfaction (table 2, measures 7, 8,
and 6)* are used to assess the effect, or outcomes from lending to
disaster victims. These outcome measures have limitations that are similar
to the output measures. First, while the restoration of homes and
businesses is a

stated outcome in SBA*s strategic and performance plans, SBA does not
actually measure the number of homes and businesses restored. As indicated
earlier, headquarters officials said that SBA reports on the number of
home loans approved as a proxy measure for the number of

homes restored to predisaster condition. The agency also uses a proxy
measure* the number of business loans approved* for the number of
businesses restored to pre- disaster condition.

The proxy measures that are used to report disaster loan outcomes have
several limitations. First, these measures assess program outputs, loans
approved, and not the stated outcomes* restoration of homes and
businesses. Second, this proxy measure likely overestimates the number of
homes and businesses restored. As SBA staff explained, even when loans are
approved, borrowers might cancel the loan or reduce the amount of the loan
to avoid using their homes as collateral. For example, about 10 percent of
the loans approved for September 11 victims were subsequently cancelled by
borrowers.

Third, these indicators use annual numbers, which are not useful standards
since they are highly dependent on factors outside of SBA*s control, such
as the number of disasters that occur during a given fiscal year. A more
useful indicator would be the percentage of homes and businesses receiving
loans that were restored each year to pre- disaster conditions, which
would enable a yearly comparison of performance. However, various SBA
officials indicated that it is not easy to obtain evidence on the
percentage of homes or businesses that have been restored after a
disaster. One DAO official pointed out that though he supported conducting
on- site progress

inspections to measure whether homes or businesses have been restored,
they are currently able to conduct on- site inspections for only a tiny
fraction of the properties due to their limited travel budget. He has had
to increasingly rely on the integrity of the applicants and SBA reviews of
the borrowers* receipts. 21 Other staff indicated that some alternative
strategies, such as reviewing pre- and post- disaster property tax
assessments as a proxy measure for the restoration of homes, would also be
problematic because of different economic conditions in different
communities.

21 In commenting on our draft, SBA indicated that many progress
inspections are performed via *desk- top* reviews instead of on- site
inspections. The Automated Loan Control System, which SBA uses to track
disaster loans, does not record if a progress inspection was conducted
using the on- site or desk- top method, so no specific measure of the use
of on- site

versus desk- top progress inspections is available.

To measure another outcome* customer satisfaction (table 2, measure 9)*
SBA uses the results of its survey of successful loan applicants. SBA also
uses this survey to evaluate the impact of the program. Yet, SBA*s method
for conducting the survey has significant limitations. First, the survey
measures the satisfaction of only a portion of the customers that the
Disaster Loan Program serves. Every DAO director we interviewed indicated
that all disaster victims are SBA customers and that a broader population
should be surveyed. In 2001, we and SBA*s Inspector General made the same
suggestion to SBA. As we indicated then, the current survey method is
likely to produce positively skewed responses. SBA headquarters officials
indicated that they are resistant to surveying those who were denied loans
because they presumed the applicants* responses would be negative. Yet, as
described earlier in this report, it was the complaints from September 11
applicants that informed SBA of problems in the existing loan program and
led the agency to revise the disaster program to better serve disaster
victims. SBA does not currently plan to expand its fiscal year 2002 survey
to a sample of all loan applicants. Second, the target set for this
indicator, 80 percent, is set below what the

program has reportedly achieved in the past; for example, 97 percent in
1998 and 1999, and 81 percent in 2000.

Measures Do Not Assess Our review of the 2003 performance plan found that
five of the six

Intermediate or End Outcomes measures (table 2, measures 4, 5, 7, 8, and
9) that are currently used to

assess the performance of SBA*s disaster lending focus on narrow program
outputs rather than intermediate or end outcomes. As mentioned earlier,
OMB guidance states that the plan should include outcomes when their

achievement is scheduled during the fiscal year. In addition,
recommendations from the Inspector General and guidance from us and within
SBA have encouraged the use of outcome measures for this program. Only the
customer satisfaction measure has the potential to assess one of the
stated end outcomes from the Disaster Loan Program. The other intended
outcomes from disaster lending, which might be

measured annually or bi- annually, such as jobs retained or housing
restored, are not measured. SBA may be able to measure, for those loans
that are fully disbursed by the first or second quarter of the fiscal
year, the percent of homes or businesses that have been fully restored at
year*s end.

In addition, SBA does not measure potential intermediate or end outcomes
for the Disaster Loan Program. For example, as described earlier, some
September 11 loan applicants criticized SBA*s underwriting criteria as too
restrictive. In the past, SBA used two intermediate outcome measures, loan
currency, and delinquency rates as listed in table 2, to reflect the
quality of

disaster loans. Yet, these measures were not included in the 2001
performance plan. 22 Another potential intermediate outcome from the
underwriting process, the retention of appropriate insurance, is not
measured. As indicated in appendix II, SBA requires loan applicants to
obtain insurance related to the nature of the disaster in order to receive
a disaster loan. As one DAO official suggested, having insurance, such as
flood insurance, potentially reduces the number of disaster loans required
in areas that experience recurring disasters. As we reported previously, a
greater reliance on insurance can reduce disaster assistance costs and
could reduce the effect of a disaster on its victims. 23 SBA headquarters
staff said that, while they recognize that the proxy

measures for the restoration of homes and businesses are inadequate and
are aware that the customer survey only assesses the satisfaction of a
portion of their customers, they have a limited ability to develop and use
better outcome measures. The staff indicated that the very nature of
disaster lending is unpredictable, so it is difficult to set performance
targets for intermediate or end outcomes. A headquarters SBA official said
that they are reluctant to measure and report intermediate or end outcomes
that they cannot control. For example, one DAO official suggested that SBA
cannot ensure that businesses that receive a disaster loan will survive.
Other factors he suggested, such as differences in the willingness of
people from different regions to acquire debt, will affect the borrower*s
decisions.

Other DAO officials indicated that conducting some end outcome measurement
methodologies would be expensive, such as conducting onsite inspections of
a sampling of homes and businesses to determine if they have been
restored.

Limitations in the We identified at least five features of the description
of the Disaster Loan Performance Plan

Program in the 2002 and 2003 performance plans (see table 3) that make it
difficult to assess whether SBA is making progress in attaining its
strategic goal. First, as discussed earlier, strategic goals and
performance goals in

22 The Inspector General*s review of the 2000 performance plan criticized
the methodology SBA used to calculate the rate, but it did not recommend
that SBA eliminate the measure. Rather, the Inspector General suggested a
strategy to improve calculating the delinquency rate, with which SBA
concurred. Yet, in the 2001 performance plan the delinquency and currency
rate measures were omitted, without explanation. 23 U. S. General
Accounting Office, Disaster Assistance: Information on Federal Costs and

Approaches for Reducing Them, GAO/ T- RECD- 98- 139 (Washington, D. C.:
Mar. 26, 1998).

annual plans may be identical, which is the approach SBA uses for the
strategic and performance goals for the Disaster Loan Program. Between the
2002 and the 2003 performance plans, the performance goal changed

from an outcome- oriented goal-- helping families recover from disasters*
to an output- oriented goal* streamlining disaster lending, without the
required explanation. GPRA requires agencies to explain why they change
performance goals, and OMB generally recommends that agencies used goals
that are outcome- oriented. Table 3: Comparison of Selected Elements of
Recent Disaster Loan Program Performance Plans and Reports Performance
Performance

plan goal Outputs Outcomes Performance indicators

2002 Help families and  Loans to families and

 Restored housing  Field presence within 3 days

businesses businesses  Jobs retained

of declaration recover from  Increased survival of  Achieve high
customer disasters

businesses satisfaction rate

 Stabilized local economy  Applications processed within

 Customer satisfaction 21 days

2003 Streamline  Disaster loans to families and  Restored housing &

 Homes restored to predisaster disaster lending businesses

businesses condition

 Timely response  Jobs retained

 Businesses restored to predisaster  Reduced application &

 Increased survival of condition approval time

businesses  Field presence within 3 days

 Customer satisfaction of declaration

 Achieve high customer satisfaction rate  Applications processed within

21 days Source: GAO.

Second, the 2002 and 2003 performance plans do not define the linkages
between each program output and each intermediate or end outcome. The
plans do not explain how the outputs* disaster loans* are related to the
performance indicators* field presence, customer satisfaction, and
application processing timeframes. Third, the plans do not explain how the
performance measures or indicators are related to either program outcomes
or outputs. Fourth, the plans do not explain if the targets for the
performance measures are set in anticipation of performance improving,
regressing, or remaining the same. For example, some targets are at or

below the actual performance in previous years. Fifth, performance
indicators are added to the plans, or dropped* as shown in table 2*
without explanation. These omissions make it difficult to understand how
and if SBA expects to improve or sustain its loan processing performance.

The performance plans also contain incomplete or inaccurate information on
some performance indicators. For example, despite OMB and SBA guidance,
validation and verification information on field presence and loan
processing measures is omitted, making it difficult to assess the quality
of performance data. In addition, the 2003 performance plan indicates that
data on the number of homes restored to pre- disaster condition are based
on- site inspections of homes. However, SBA officials indicated that they
use a proxy measure* the number of original home loans approved* as the
actual source of data for homes restored to predisaster condition.

Conclusions The September 11 terrorist attacks presented SBA with
challenges it had never before faced. First, it had to provide loans to
individuals and

businesses near the disaster site as well as to small businesses located
throughout the country. Rather than providing most of its loans for the
repair and replacement of physical structures, SBA found itself dealing
with large numbers of economic injury loans to businesses with amended
guidelines. Second, given the extent of the economic effects in the wake
of the attacks, SBA had to work with the Congress to modify the Disaster
Loan Program so that larger loans could be provided to a broader
population of disaster victims. Input from small business owners and
advocates at congressional hearings was key to the changes that were

made* changes that, whether temporary or permanent, will be useful for SBA
and other federal agencies to consider in responding to future disasters.

In this and previous work, we found that SBA*s Disaster Loan Program
performance measures do not fully or adequately reflect the program*s
actual performance. Viewing the performance measures in light of SBA*s
response to the September 11 attacks underscores this finding. First, two
current output measures describe only discrete steps of multistep
processes, and some output measures use performance targets that have
already been achieved or exceeded. Second, most of SBA*s measures assess
program outputs instead of assessing measurable outcomes. We recognize the
challenge of identifying end outcome measures, such as restoring a
business to predisaster condition given the many factors involved in a
business* success. However, we note that intermediate outcome measures can
provide meaningful information about the effect of SBA*s program. But
SBA*s plan does not use intermediate outcome measures to link its output

measures to the intended outcomes of the program. The one outcome measure
SBA uses* a customer survey* is directed only at disaster victims

who received loans. SBA misses the opportunity to get feedback from
applicants who did not get loans. Yet SBA*s response to September 11 was
modified partly as a result of the concerns small businesses expressed.
Moreover, the limitations in the program*s performance measures and plans
mean that congressional decisionmakers do not have an accurate

description of SBA*s progress to help them make informed decisions in
directing and funding the Disaster Loan Program.

Recommendations In order to better demonstrate program performance, we
recommend that the Administrator of SBA direct the Office of Disaster
Assistance to

 revise the performance measures for disaster lending to (1) include more
outcome measures; (2) assess more significant outputs, such as service to
applicants or loan underwriting; (3) report achievements that can be
compared over several years, such as percentages; and (4) include
performance targets that encourage process improvement rather than
maintaining past levels of performance;

 revise and expand its current research to improve its measures and
evaluate program impact. To improve its current measures SBA should
conduct research, such as surveying DAO staff and reviewing the disaster,
lending, and performance literature, to identify and test new outcome
measures. To evaluate its program impact, SBA needs to revise its survey
approach to survey all disaster loan applicants and to employ other
methods, such as periodic analyses of regional statistics, to assess

the economic impact of the program on local communities; and  revise the
disaster section of the performance plan to (1) establish direct linkages
between each output and outcome and the associated

performance measure; (2) accurately describe proxy measures as either an
outcome or output measures; (3) accurately describe the validation and
verification of performance measures; and (4) explain additions,
deletions, or changes in the current goals or measures used from the
previous year. Agency Comments We requested SBA*s comments on a draft of
this report, and the Associate

Administrator for Disaster Assistance provided written comments that are
presented in appendix V. SBA generally agreed with our recommendations and
said that they intended to review the existing performance measures

and research new ways to evaluate program impact. SBA also provided some
technical corrections and comments, which we incorporated as appropriate
in this report.

We are sending copies of this report to the Ranking Minority Member of the
House Committee on Small Business, the Chairman and Ranking Minority
Member of the Senate Committee on Small Business and Entrepreneurship,
other appropriate congressional committees, and the Administrator of the
Small Business Administration. In addition, this report will be available
at no charge on GAO*s Web site at http:// gao. gov.

If you have any questions about this report, please contact M. Kay Harris,
Assistant Director, or me at (202) 512- 8678. Key contributors to this
report were Kristy Brown, Sharon Caudle, Patricia Farrell Donahue, and
John Mingus.

Sincerely yours, Davi M. D*Agostino Director, Financial Markets and
Community Investment Issues

Appendi Appendi xes x I

Scope and Methodology To review the Small Business Administration*s (SBA)
response to the September 11 terrorist attacks, we interviewed officials
from the Office of Disaster Assistance (ODA) at SBA headquarters and
officials from each of the four SBA Disaster Area Offices. In addition, we
interviewed officials from SBA*s Office of the Inspector General. We also
reviewed documents related to disaster lending policy and procedures, the
agency*s response to the September 11 attacks, and other program
documentation. In addition, we reviewed congressional testimony as well as
regulatory actions taken by SBA, and legislative action by the Congress,
in response to the terrorist

attacks. To analyze SBA*s lending to September 11 victims, we obtained
data from SBA*s Automated Loan Control System (ALCS), the system used by
SBA to track disaster loan applications, approvals, and disbursements. We
used these data to calculate descriptive statistics on the numbers of
disaster loans, disbursement amounts, and other characteristics of the
disaster lending to September 11 victims. We limited our analysis to loan
funds approved through September 30, 2002. For our analysis of type of
industry, we used the North American Industry Classification System
(NAICS) code from the database and grouped the results by the first two
letters of the code, which designate the general industry type. We
determined the five industry types that received the largest percentage of
SBA September 11 loans nationwide, grouping the remaining industries in
the *other* category. We conducted similar analysis by industry for each
type of September 11- related declaration. We ascertained how information
for the ALCS database was collected and maintained to determine its
reliability, and we found the information to be reliable for our purposes.
We repeatedly consulted with SBA headquarters officials, including those

responsible for managing ALCS, during our analyses to ensure our
understanding of various data elements was correct. We also obtained
summary statistical reports from SBA describing disaster lending during
fiscal years 2001 and 2002.

To review and analyze SBA*s performance plans and measures for its
Disaster Loan Program, we reviewed SBA*s strategic plan for the 2001- 2006
period and performance plan for fiscal years 2002 and 2003. A
knowledgeable staff member from our Strategic Issues Team also reviewed
the plans for compliance with the Office of Management and Budget*s (OMB)
guidance on the Government Performance and Results Act (GPRA)

of 1993 guidance. We also reviewed SBA*s Inspector General*s recent review
of the disaster section of recent performance plans, SBA*s primer on
performance measurement, and our recent reviews of SBA. Our overall

assessment of SBA*s performance plans was generally based on our knowledge
of the Disaster Loan Program and OMB*s guidance on developing strategic
and performance plans.

We conducted our work between June 2002 and January 2003 in Washington, D.
C.; Niagara Falls; Atlanta; and Fort Worth in accordance with generally
accepted government auditing standards.

SBA Disaster Response, Loan Processing, and

Appendi x II

Loan Disbursement Procedures Disaster loan process step Description

Damage assessment State and federal officials conduct a preliminary damage
assessment to estimate the extent of the disaster and its impact on
individuals and public facilities. SBA participates in the damage
assessment when the damages include homes and businesses. Declaration The
President, USDA, or SBA makes a disaster declaration.

Receipt of application  SBA establishes field presence * SBA staff arrive
at the disaster site and take actions to initiate delivery of disaster
assistance.  SBA loan officers meet with disaster victims, explain the
loan process, and issue applications at the Federal Emergency Management
Agency (FEMA) or SBA disaster offices.  SBA screens the submitted
applications for completeness and to make sure all necessary documentation

has been provided. -Home loan application package includes the
application, listing of property damage, and authorization for SBA to
access applicant*s tax information. -Business loan application package
includes the application, a schedule of liabilities, and personal
financial statements and tax information authorization for each
proprietor, partner, affiliate, or other type of owners. Loss verification
 Physical loan applications are forwarded to loss verifiers who conduct
on- site appraisals of the damaged property to estimate the cost of
restoring the property to pre- disaster condition.

 Economic injury applications may be sent directly to a Disaster Area
Office (DAO) for processing. Application processing  Once the application
arrives at the DAO, SBA staff review the application, examining such
issues as

duplication of benefits; credit history; criminal record; tax returns;
history on other SBA loans; and the history on other federal debt.  The
applicant*s losses or economic injury are calculated.  The loan officer
determines whether the applicant has satisfactory credit and the ability
to repay the loan; the legal department determines whether there are any
legal or regulatory restrictions on receiving a disaster loan.  If the
applicant meets SBA*s underwriting criteria, then the loan is approved,
using the amount of verified losses as the basis for the loan amount. 
Closing documents are prepared and mailed to the applicant.

Loan disbursement  Applicants are required to obtain insurance. Hazard
insurance is required before disbursement over $10,000 for physical loans,
and over $5,000 for economic injury loans. Flood insurance is required for
properties located in Special Flood Hazard areas before any disbursement
can be made.  Maximum initial disbursement without collateral: physical
loans - $10,000; economic injury loans * $5, 000  Initial disbursement
with collateral, preferably the applicant*s home: $25,000.  Total
disbursements with proof of ownership of the damaged property: physical
loans and economic injury loans - $25,000.

 Total disbursements with proof of title insurance: physical loans and
economic injury loans - $250,000. a Sources: SBA Disaster Loan Program
Standard Operating Procedures and interviews with disaster loan officials.
a In cases when improper use of previous disbursements is suspected,
agency procedures indicate that loss verifiers may conduct on- site
progress inspections; however, this is rare according to some agency

officials.

Regulatory and Statutory Changes to SBA*s Disaster Loan and 7( a) Program
in Response

Appendi x III

to the September 11 Terrorist Attacks Disaster loan and 7( a) programs
prior to Changes to Disaster Loan and 7( a) Programs September 11 attacks
in response to September 11 attacks

Statutory changes January 10, 2002

Emergency Supplemental Act of For small businesses in declared disaster
area,

For small businesses in declared disaster area, 2002 (P. L. 107- 117) 
maximum disaster loan amount is $1. 5 million,  maximum disaster loan
amount is $10 million,

 small non- profit institutions and select financial  small nonprofit
institutions and select financial

and insurance firms were ineligible for economic and insurance firms
eligible for economic injury injury assistance,

assistance,  interest begins to accrue when disbursement is  no interest
accrues for 2 years following made, and issuance, and  payments of
principal and interest are deferred

 payments of principal and interest are deferred for 4 months.

for 2 years following issuance. For 7( a) lenders: For 7( a) lenders to
small business adversely  7( a) loan fee = .50 percent of outstanding
affected by attacks:

balance. 7( a) loan fee = .25 percent of outstanding balance.

Regulatory changes October 22, 2001

Expanded EIDL for small Economic injury loans available only to small
Economic injury loans available to small

businesses nationwide businesses within the declared disaster area,
businesses nationwide, adversely affected by the

directly affected by the disaster. disaster or by related action taken by
the federal

government.

February 22, 2002

Inflation- adjusted size standards Inflation- adjusted size standards,
generally effective February 2002, were effective September 11, 2001, for
businesses applying for economic injury loans as a result of the terrorist
attacks. March 15, 2002

Increased size standards for Threshold for *small* travel agencies is $1
million

Threshold for *small* travel agencies is $3 million travel agencies in
annual revenues. in annual revenues

(Continued From Previous Page)

Disaster loan and 7( a) programs prior to Changes to Disaster Loan and 7(
a) Programs

September 11 attacks in response to September 11 attacks Program changes
October 15, 2001

Expedited EIDL processing For World Trade Center and Pentagon areas,

 Limited to businesses with physical damage.  businesses do not have to
sustain physical

 Economic injury loan amount based on 2 losses; months of gross margin,
with maximum loan

 if business in operation, economic injury loan amount the lesser of (1)
3 times the SBA verified amount based on up to 3 months gross margin,
physical loss or (2) $100,000.

with maximum loan amount of $200,000; and  if business not in operation,
economic injury loan amount based on up to 6 months gross

margin, with maximum loan amount of $350,000. For EIDL applicants
nationwide without any property damage,  The loan amount was limited to
the lesser of 2

months gross margin or $50,000.

October 16, 2001

Expedited disbursement process Disbursements greater than $25,000 require
a For World Trade Center and Pentagon areas, title search.  title search
is not required for disbursements up to $50, 000.

Sources: Emergency Supplemental Act of 2002, P. L. No. 107- 117; Federal
Register, Vol. 67 No. 10; Federal Register, Vol. 67 No, 15; Federal
Register, Vol. 67 No, 51; SBA documents.

Data on SBA Disaster Loans Made to Victims

Appendi x IV

of September 11 Terrorist Attacks SBA Responds to SBA*s response to the
September 11 disaster commenced immediately after Multiple Disaster Areas

the terrorist attacks occurred, when SBA disaster officials established
communication with FEMA and state emergency management officials. By the
afternoon of September 11, disaster officials from SBA*s Niagara Falls

DAO were in Lower Manhattan coordinating the agency*s recovery efforts
with the overall federal response. Once the President declared the World
Trade Center attack a major disaster, SBA designated the immediate
disaster area of the World Trade Center (* WTC Immediate*) as the five
boroughs of New York City, and the contiguous area of the World Trade

Center (* WTC Contiguous*) as including two other counties in New York and
four counties in New Jersey. SBA officials began meeting with disaster
victims on September 13. Following the President*s declaration of the
Pentagon attack as a major

disaster on September 21, SBA established the immediate area of the
Pentagon, which was comprised of Arlington County, Virginia, and the
contiguous area of the Pentagon, which included additional counties in
Maryland, and Virginia (* Pentagon Contiguous*), and parts of the District

of Columbia. FEMA extended the declared disaster areas on September 27 as
the widespread impact of the terrorist attacks became more apparent. The
immediate area of WTC was extended to include 10 additional counties in
New York, including the 2 counties initially included in the WTC
Contiguous area. The extension also added additional counties in New York
and New Jersey, as well as counties in Connecticut, Massachusetts, and
Pennsylvania to the existing WTC Contiguous area. See figure 4 for a map
of the disaster areas. As the United States began to deploy military

personnel in response to the terrorist attacks, small businesses affected
by the loss of employees who serve as reserve military personnel were
eligible to apply for a disaster loan under the Military Reservist EIDL
Program.

Figure 4: Immediate and Contiguous Disaster Areas for September 11
Terrorist Attacks World Trade Center

Maine Vt. N. H.

New York Mass. Conn.

Pennsylvania R. I.

N. J. SBA Declarations

WTC Contiguous WTC Immediate

Pentagon W. Va.

Maryland D. C. Virginia

SBA Declarations

Pentagon Contiguous Pentagon Immediate Source: GAO analysis of SBA data.

SBA Has Provided We obtained and analyzed SBA data on the loans it
approved in response to

September 11 Disaster September 11, 2001, through September 30, 2002. The
distribution of

Loans to a Range of Small September 11 lending varied significantly by
amount, geographic location

Businesses Nationwide of recipients, and the types of loans. Nearly half
of the September 11 loan

funds disbursed by the end of fiscal year 2002 was distributed to disaster
victims from New York. The balance was disbursed across the country
through the expanded EIDL Program. Unlike other recent disasters, almost
all of the disbursed loan funds went to businesses rather than homeowners.

September 11 Lending In just over 1 year, SBA approved more than 9, 700
home and business loans

Nationwide totaling $966 million for victims of the September 11 attacks,
disbursing about $895 million, or 93 percent, by the end of fiscal year
2002. The peak in monthly disbursement amounts for all September 11 loans
was in January

2002 at $120 million. The agency expects to fully disburse $924 million*
or 96 percent of the amount approved* due to loan increases, decreases,
and cancellations. As of the end of fiscal year 2002, about 10 percent of
approved September 11 loans were cancelled by borrowers, compared with 16
percent of approved disaster loans in fiscal year 2001. The greatest
percentage of loan cancellations occurred in the immediate area of WTC,

where 13 percent of the loans in this area were cancelled. The contiguous
area of the Pentagon experienced the greatest percentage of loan
increases, where 11 percent of September 11 loans were increased from
their original approved amount. Given the difference between the approved
amounts and the disbursed amounts* due to loan increases, decreases, and
cancellations* we have chosen to describe the distribution of September 11
loans in terms of the actual disbursed loan amounts.

September 11 loan disbursement amounts range from $300 to $1.5 million,
with a median amount of $50,000. Fifty percent of disbursements were
between $18, 700 and $119, 700. Eleven percent of September 11 loan
disbursements were for $50,000, the most frequently disbursed amount. In
commenting on our draft SBA, indicated that the agency applied the
expedited EIDL process for *stand- alone* EIDLs, that is, applicants
without any

property damage. The loan amount was limited to the lesser of 2 months
gross margin or $50,000, which SBA described as the reason why the most
commonly disbursed amount was $50,000. The distribution of September 11
loans also varied by state, type of loan, declaration area, and by
business industry.

September 11 Lending by Type of Typically, about 80 percent of approved
SBA disaster loans are home loans

Loan to repair physical damage to homes and personal property. However,
about

97 percent of September 11 loans were disbursed to businesses. Even in

New York City, only 6 percent of loans were disbursed to households. SBA
officials attribute this difference from the historic lending pattern to
the fact that the physical damage caused by the terrorist attacks was
concentrated in the World Trade Center business district and at the
Pentagon. Seventy percent of the businesses receiving September 11 loans
had 10 or fewer employees, while 50 percent had 5 or fewer employees.
Businesses with more than 100 employees received less than 2 percent of
disbursed loan funds.

Overall, only about 9 percent of September 11 loan applicants in the
declared disaster areas sustained physical losses compared with about 80
percent of disaster loan applicants in fiscal year 2001. Consequently, 92
percent of September 11 loans went to small businesses that suffered

economic injury, but no physical damage, and about 5 percent of the loans
were disbursed to businesses with physical damage from the attacks.

September 11 Lending by State Although SBA provided loans to affected
small businesses nationwide, about 45 percent of all disbursed September
11 loan funds were distributed to applicants in New York State. Of that 45
percent, approximately 36 percent was disbursed to disaster victims in New
York City. As shown in

figure 1, Florida received the second greatest percentage of disbursed
September 11 loans (11 percent), followed by California (6 percent), New
Jersey (4 percent), Texas (3 percent), and Virginia (3 percent).

More than half of all September 11 loan funds were disbursed to small
businesses outside of the immediate and surrounding areas of the World
Trade Center and the Pentagon. SBA data indicate that, in general,
businesses located closest to the WTC disaster site received smaller loans
than businesses near the Pentagon and nationwide. For example, the median
disbursement in the immediate area of WTC, specifically New York City, was
about $40,000, while the median disbursements under the expanded EIDL
Program and in the area of the Pentagon were $50,000 and $60,000,
respectively. SBA disaster officials reasoned that firms near WTC may have
received smaller SBA loan disbursements because there were other resources
available to them, 1 whereas SBA was the sole source of assistance for
affected small businesses outside of New York City. In addition, SBA
officials suggested that since many September 11 loan

1 See U. S. General Accounting Office, September 11: Small Business
Assistance Provided in Lower Manhattan in Response to the Terrorist
Attacks, GAO- 03- 88 (Washington, D. C.: Nov. 1, 2002).

recipients in New York City were service- oriented firms, they had fewer
operating expenses than the more capital- intensive loan recipients
nationwide. Figure 5: Distribution of SBA September 11 Loans, by
Declaration Area

Loan dollars disbursed Number of loans with partial or complete
disbursements

0.5% Pentagon 0.5% Pentagon

Immediate Immediate

0.5% Military 0.5% Military reservist EIDL

reservist EIDL 2% Pentagon

2% Pentagon Contiguous

Contiguous 3% WTC Contiguous

3% WTC Contiguous

5%

WTC Immediate

5%

WTC Immediate (all other)

(all other)

46% 52%

36% WTC Immediate (New York City)

43%

WTC Immediate (New York City)

Expanded EIDL Expanded EIDL

Declared disaster areas Source: GAO analysis of SBA data.

September 11 Lending by SBA loan disbursement data appear to indicate that
a wide variety of

Industry businesses received September 11 loans. As shown in figure 2, no
one

sector of the economy received a substantial portion of these loans. We
summarized SBA*s loan data according to the type of business that received
the loan. The manufacturing sector received the greatest percentage of
September 11 loans, though this represents only about one- sixth of these

loans. 2 We combined business types with less than 7 percent of the loans
into an *other* category, which includes such sectors as retail trade and
waste management.

As shown in figure 6, the distribution of the loan disbursements by
industry for the expanded EIDL was similar to the distribution for all
September 11 loans, with the manufacturing sector receiving the second
largest portion of these loan disbursements. In contrast, to the
distribution of loan disbursements at the national level, the greatest
percentage of disaster loan funds in New York City, and the immediate and
contiguous areas of the

Pentagon was disbursed to the professional, scientific, and technical
service industry. 2 Within the manufacturing sector, firms involved in
printing activities (3 of the 17 percent)

and those making aircraft related materials (2 of the 17 percent) received
the largest portions of September 11 loans distributed to manufacturers.
Within the professional, scientific, and technical sector, businesses
providing computer- related services received the

largest portion of loan disbursements to (5 of the 16 percent). Limousine
and taxi services received the greatest percentage of disbursements within
the transportation and warehousing sector (4 of the 12 percent). The
primary recipients of September 11 loans disbursed within the wholesale
trade sector were grocery wholesalers (2 of the 10 percent).

Last, restaurants and travel accommodation services received the greatest
percentage of disbursements to the accommodation and food service sector
(8 of the 9 percent).

Figure 6: September 11 Business Loan Disbursements, by Declaration and by
Industry Expanded EIDL

Other

10%

Administrative and support and waste management and remediation services

32% 10%

Accommodation and food services

11%

Professional, scientific, and technical services

22% 15% Transportation and warehousing

Manufacturing

WTC Immediate (New York City) Pentagon Contiguous

Other Retail trade

Accommodation

7% 7%

and food services

10%

Accommodation

8%

Administrative and support and food services

and waste management and remediation services

39% 10%

Manufacturing

43% 10%

Transportation and warehousing

11%

Wholesale trade

11%

Information

22% 21%

Professional, scientific, and technical services Other

Professional, scientific, and technical services

Source: GAO analysis of SBA data.

Comments from the Small Business

Appendi x V Administration

(250110)

                                       A

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a

GAO United States General Accounting Office

As part of its response to the September 11 terrorist attacks, SBA
modified several aspects of its Disaster Loan Program and its processes.
For example, SBA increased the maximum loan amounts available and
decreased the amount of documentation required for certain loans. By the
end of fiscal year 2002, approximately $1 billion in loans had been
approved for victims of the attacks. On average, SBA processed business
loans to September 11 victims in an average 13 days compared with 16 days
for business loans to other disaster victims in fiscal year 2001.

Like other federal programs, SBA has developed a multiyear strategic goal
for the Disaster Loan Program* helping families and businesses recover
from disasters* and has developed annual goals and measures to assess its
yearly progress toward attaining their strategic goals. GAO reviewed the
measures and found that they have numerous limitations. For instance,
these measures do not capture the notable progress the program has made in
improving its loan processing* progress that ultimately affects disaster
loan applicants and borrowers. The inadequacies of SBA*s measures are
especially evident when considered in light of the agency*s performance in
responding to the September 11 terrorist attacks. GAO attributes some of
these limitations to the nature of the measures SBA uses to describe the
performance of the Disaster Loan Program, while others can be attributed
to the description of the program*s performance. Without better
performance measures and plans, the Congress does not have an accurate
description of SBA*s annual progress toward helping Americans recover from
disasters.

SBA personnel meet with individuals interested in loans that help
homeowners and small businesses recover from disasters. SMALL BUSINESS
ADMINISTRATION

Response to September 11 Victims and Performance Measures for Disaster
Lending

www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 385. To view the full report,
including the scope and methodology, click on the link above. For more
information, contact Davi M. D*Agostino at (202) 512- 8678 or dagostinod@
gao. gov. Highlights of GAO- 03- 385, a report to the

Chairman, Committee on Small Business, House of Representatives January
2003

The September 11 terrorist attacks and subsequent federal action had a
substantial impact on businesses in both the declared disaster areas

and around the nation. In the aftermath of the attacks, the Congress,
among other actions,

appropriated emergency supplemental funds to the Small Business
Administration (SBA) to aid September 11 victims. Given the uniqueness of
this disaster and

changes in the program, GAO analyzed SBA*s lending to September 11
victims, as well as

the loan program*s performance goals and measures. SBA should

 revise the performance measures for disaster lending,  expand its
current research to improve its measures and evaluate program impact, and

 revise the disaster section of the performance plan.

SBA generally agreed with GAO*s recommendations.

Page i GAO- 03- 385 SBA Disaster Lending

Contents

Contents

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Appendix I

Appendix I Scope and Methodology

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Appendix II

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Appendix III

Appendix III Regulatory and Statutory Changes to SBA*s Disaster Loan and
7( a) Program in Response to the September 11 Terrorist Attacks

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Appendix IV

Appendix IV Data on SBA Disaster Loans Made to Victims of September 11
Terrorist Attacks

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Appendix IV Data on SBA Disaster Loans Made to Victims of September 11
Terrorist Attacks

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Appendix IV Data on SBA Disaster Loans Made to Victims of September 11
Terrorist Attacks

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Appendix IV Data on SBA Disaster Loans Made to Victims of September 11
Terrorist Attacks

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Appendix IV Data on SBA Disaster Loans Made to Victims of September 11
Terrorist Attacks

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Appendix IV Data on SBA Disaster Loans Made to Victims of September 11
Terrorist Attacks

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Appendix V

Appendix V Comments from the Small Business Administration

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