Small Business Administration: Additional Steps Needed to Help Ensure More Timely Disaster Assistance
Published: 2015-07-08T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: With an estimated $67 billion in damage, Hurricane Sandy (October 2012) was the costliest Atlantic storm since Katrina in 2005. SBA administers the Disaster Loan Program, which provides physical disaster loans (to rebuild or replace damaged property) and economic injury loans (for working capital until normal operations resume) to help businesses and homeowners recover from disasters.
This testimony discusses (1) the timeliness of SBA's disaster loans, (2) loan approval, withdrawal, and cancellation rates for selected previous disasters; and (3) the extent to which SBA implemented loan programs mandated by the Small Business Disaster Response and Loan Improvements Act of 2008. This testimony is based on GAO's September 2014 report ( GAO-14-760 ) on SBA assistance to small businesses after Sandy. For that report, GAO analyzed SBA data on application processing, reviewed documentation related to SBA's planning, reviewed relevant legislation and regulations, and interviewed SBA officials. GAO provides updates on steps SBA has taken to implement GAO's recommendations.
section_title: What GAO Found
paragraphs: Following Hurricane Sandy, the Small Business Administration (SBA) did not meet its timeliness goal (21 days) for processing business loan applications. From receipt to loan decision, SBA averaged 45 days to process physical disaster loans and 38 days for economic injury loans. SBA did not expect early receipt of a high volume of loan applications, and delayed increasing staffing—which in turn increased processing times. As of September 2014, SBA had not revised its disaster planning documents to reflect the effects that application volume and timing could have on staffing, resources, and forecasting models for future disasters. Federal internal control standards state that management should identify risks and take action to manage them. Without taking its post-Sandy experience with application submissions into account in its disaster planning documents and analyzing the potential risks posed for timely response, SBA might be unprepared for similar situations in future disasters, which could delay getting loan funds to disaster victims. In June 2015, SBA provided GAO with an updated version of one disaster planning document—the Disaster Playbook—which includes discussion of early application volume and references to updated staffing models. GAO's review of these changes is ongoing.
In comparison with the five disasters that generated the most SBA disaster loan applications since 2005, the loan approval rate after Sandy was not consistently higher or lower, but the application withdrawal and loan cancellation rates (32 percent and 38 percent, respectively) were consistently higher than other disasters. SBA approved 42 percent of business loan applications after Sandy, a rate lower than for Katrina, Rita, and Wilma, higher than for Ike, and comparable with that for Irene. For Hurricane Sandy and for previous disasters, SBA primarily declined business loan applications because of applicants' lack of repayment ability and credit history.
As of June 2015, SBA had not implemented the guaranteed disaster loan programs Congress mandated in 2008, including the Immediate Disaster Assistance Program (IDAP)—a bridge loan program in which private-sector lenders would provide disaster victims with up to $25,000 and an SBA decision within 36 hours of a lender's application on behalf of a borrower. In 2014, SBA officials told GAO they were trying to implement IDAP but had received some feedback from lenders that some program requirements—such as a statutory minimum 10-year loan term under certain circumstances—might discourage lender participation. SBA had not conducted a formal documented evaluation of lender feedback to establish what implementation challenges the agency might face and to determine what, if any, statutory changes Congress could consider. Without an appropriately documented evaluation of lender feedback, SBA might not have reliable information with which to inform its own actions and its reporting to Congress about challenges with implementing the programs. In June 2015, SBA provided GAO with documentation of additional outreach performed in October 2014, where lenders provided specific feedback regarding current statutory requirements and proposed program requirements. SBA has yet to adopt a plan for how and whether it will proceed with IDAP implementation or document the challenges it would face in implementing the program. Therefore, SBA has not reported to Congress on these issues.
section_title: What GAO Recommends
paragraphs: In September 2014, GAO recommended that SBA revise its disaster planning documents, conduct a formal documented evaluation of lenders' feedback on IDAP, and report to Congress on challenges to implementing the program. SBA has since taken steps to revise its planning documents and received and documented some lender feedback, but has not reported to Congress.

section_title: Letter
paragraphs: I am pleased to be here today to discuss the Small Business  Administration’s (SBA) response to Hurricane Sandy, the costliest Atlantic  storm since Hurricane Katrina in 2005. Sandy made landfall in the United  States on the New Jersey shore on October 29, 2012, and estimated  damage totaled approximately $67 billion. Although 24 states were  affected, New Jersey and New York (particularly the New York City  metropolitan area) were the most impacted states. While SBA is known  primarily for its financial support of small businesses, the agency also  plays a critical role in assisting victims of natural and other disasters  through its Disaster Loan Program, which assists businesses of all sizes,  homeowners, and renters affected by federally declared disasters.
Following Hurricane Sandy, SBA received disaster loan applications from  nine states and Puerto Rico, with the majority of the business disaster  loan applications generated by businesses in New Jersey and New York.  Concerns were raised regarding the timeliness of the financial assistance  business owners received. In particular, there were questions about the  extent to which the program improved since Hurricane Katrina, and  whether previously identified deficiencies, such as delays in processing  loan applications, had been addressed.
My testimony today is based on information in our September 2014 report  on SBA’s response to Hurricane Sandy, and includes updates on steps  SBA has taken to address two recommendations from that report. One  recommendation related to better planning for high volumes of loan  applications and another related to evaluating lender feedback to inform  SBA and Congress about challenges to implementing a new loan  program and determining if statutory changes might be necessary to aid  implementation, and then reporting to Congress about any such  challenges or changes. Specifically, this testimony discusses (1) the  timeliness of SBA’s disaster assistance to small businesses and factors  affecting timeliness, (2) comparative loan approval, withdrawal, and  cancellation rates after selected disasters; and (3) the extent to which  SBA implemented loan programs mandated by the Small Business  Disaster Response and Loan Improvements Act of 2008.
For our September 2014 report, to evaluate the timeliness of SBA’s  disaster assistance to small businesses after Sandy, we obtained and  analyzed data on application processing from SBA’s Disaster Credit  Management System (DCMS), reviewed documentation on SBA’s loan  processing procedures and its internal assessment of its response to  Sandy, and interviewed knowledgeable SBA officials. We spoke with six  Small Business Development Centers and eight local business  organizations in New Jersey and New York to identify challenges  businesses faced in receiving timely disaster assistance. We obtained  and analyzed DCMS data for the largest disasters from 2005 to 2012 as  measured by loan application volume (Hurricanes Katrina, Rita, Wilma,  Ike, Irene, and Sandy) to compare approval, withdrawal, and cancellation  rates. We also performed comparisons on the DCMS data we received to  ensure its accuracy and completeness and interviewed SBA officials  responsible for maintaining the data. We concluded that SBA’s data were  sufficiently reliable for the purposes of our report.
To assess the extent to which SBA implemented programs mandated by  the Small Business Disaster Response and Loan Improvements Act, we  reviewed relevant legislation and regulations, and interviewed officials  knowledgeable about these matters. The work on which this statement is  based was conducted from August 2013 through September 2014 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives. To update the status of our  recommendations, in June 2015 we spoke with SBA officials about steps  SBA had taken to address our recommendations, and reviewed updated  documentation related to SBA’s disaster planning and lender outreach.
subsections: section_title: Background
paragraphs: Administered by SBA’s Office of Disaster Assistance (ODA), the Disaster  Loan Program is the primary federal program for funding long-range  recovery for nonfarm businesses that are victims of disasters and is the  only form of SBA assistance not limited to small businesses.
SBA can make available several types of disaster loans, including two  types of direct loans: physical disaster loans and economic injury disaster  loans.
Physical disaster loans are for permanent rebuilding and  replacement of uninsured or underinsured disaster-damaged property.  They are available to homeowners, renters, businesses of all sizes,  and nonprofit organizations. These loans are intended to repair or  replace the disaster victims’ damaged property to its predisaster  condition up to a certain capped amount.
Economic injury disaster loans provide small businesses that are  not able to obtain credit elsewhere with necessary working capital  until normal operations resume after a disaster declaration. The loans  cover operating expenses the business could have paid had the  disaster not occurred.
Not all businesses are eligible for both types of loans. Businesses of all  sizes may apply for physical disaster loans, but only small businesses are  eligible for economic injury loans.
Congress enacted the Small Business Disaster Response and Loan  Improvements Act of 2008 to expand steps taken by SBA after Hurricane  Katrina and require new measures to help ensure that SBA would be  prepared for future disasters. The act includes three provisions requiring  SBA to issue regulations to establish new guaranteed disaster programs  using private-sector lenders:
Expedited Disaster Assistance Loan Program (EDALP) would  provide small businesses with expedited access to short-term  guaranteed loans of up to $150,000.
Immediate Disaster Assistance Program (IDAP) would provide  small businesses with guaranteed bridge loans of up to $25,000 from  private-sector lenders, with an SBA decision within 36 hours of a  lender’s application on behalf of a borrower.
Private Disaster Assistance Program (PDAP) would make  guaranteed loans available to homeowners and small businesses in  an amount up to $2 million.
section_title: Timeliness of Disaster Assistance and Challenges to Address
paragraphs: The following section discusses the extent to which SBA met goals for  timely processing of business loan applications and factors affecting  timeliness; changes SBA made to address processing issues; and  challenges that business organizations identified to timely receipt of  assistance.
subsections: section_title: SBA Did Not Meet Its Timeliness Goal for Application Processing and Backlog Grew Rapidly
paragraphs: Following Hurricane Sandy, SBA did not meet its goal to process  business loan applications within 21 days from receipt to loan decision.  SBA took an average of 45 days for physical disaster loan applications  and 38 days for economic injury applications.
The average processing time for business loans peaked in March 2013 (5  months after the storm); business loans for which SBA reached a  decision in March 2013 had spent nearly 60 days being processed, on  average. One year after the storm, processing times for business loan  applications still exceeded 21 days.
A backlog of applications that were “in processing” (meaning SBA had not  yet made a loan decision) grew rapidly over the course of SBA’s  response to the disaster (see fig. 1).
section_title: SBA Did Not Anticipate Early Timing and High Volume of Applications
paragraphs: SBA said that in the aftermath of Hurricane Sandy, it was challenged by a  high volume of loan applications submitted at a faster rate than it had  experienced in previous disasters. SBA’s initial estimates of when it would  receive applications differed from when it actually received them.
To prepare for a disaster, SBA uses assumptions about the volume and  timing of the applications it expects to receive based on historical data— known as the “application intake curve.” These assumptions serve as  inputs to forecasting models that predict the staff levels necessary to  meet processing needs.
According to the application intake curve for Hurricane Sandy, SBA  estimated that application submission would peak about 7–9 weeks after  Sandy. However, as shown in figure 2, SBA began receiving business  applications earlier. According to SBA, the early spike in applications  occurred because a majority of applications were submitted electronically  rather than on paper, which resulted in a large volume of applications  within a few days of the disaster. SBA stated that the earlier receipt of  electronic submissions was caused by the convenience and speed of the  Internet-based application as well as the elimination of postal handling  time. While SBA created web-based loan applications to simplify and  expedite the application process and encouraged electronic submissions,  SBA noted that it did not anticipate receiving such a large volume of  electronic loan applications early in its response to Hurricane Sandy.
Based on its experience in fiscal year 2012, SBA initially estimated that it  would receive between 11,000 and 21,600 business disaster loan  applications after Sandy and 36 percent of all applications would be  submitted electronically. Following Sandy, SBA received 15,745 business  disaster loan applications, and 55 percent of all applications were  submitted electronically.
At the time of our report, SBA had not updated its key disaster planning  documents—the Disaster Preparedness and Recovery Plan and the  Disaster Playbook—to adjust for the effects that a Sandy-like surge in  early applications could have on staffing, resources, and forecasting  models for future disasters. Federal internal control standards state that  management should identify risk (with methods that can include  forecasting and strategic planning) and then analyze the risks for their  possible effect. According to SBA’s Preparedness and Recovery Plan,  the primary goals of forecasting and modeling are to predict as accurately  as possible the application volume that will result from a disaster and the  timing of application receipt. Without taking its experience with early  application submissions after Hurricane Sandy into account, SBA risked  being unprepared for such a situation in future disaster responses,  potentially resulting in delays in disbursing loan funds to disaster victims.  We therefore recommended that SBA revise its disaster planning  documents to anticipate the potential impact of early application  submissions on staffing and resources for future disasters, as well as the  risk this impact might pose for timely disaster response.
In response to our recommendation, SBA has updated its Disaster  Playbook. The changes SBA made include explicit recognition of the  effects that high volumes of loan applications early in the response period  could have on staffing and loan processing. Our review to determine if  these changes addressed our recommendation remains ongoing.
section_title: Inaccurate Processing Expectations Also Delayed Decision to Increase Staff
paragraphs: Another factor that affected the timeliness of disaster assistance was  inaccurate expectations for application processing rates, which caused  SBA to delay its decision to increase staff levels. ODA officials said the  agency’s processing and disbursement center communicated inaccurate  production estimates to ODA headquarters, which led to delays in  increasing staff levels to respond to the early influx of applications. ODA  officials said that the center’s management projected a loan officer could  process an average of 3 home loan applications and 1.5 business loan  applications per day, for a combined average of 2.25 disaster loan  applications. However, this expectation was not met over the course of  the response. Because the estimates were based on production  benchmarks established after Hurricane Katrina, ODA officials noted that  they relied on the estimates and delayed their decision to increase staff.  ODA officials said they later recognized the past rate was not an  appropriate indicator of production for Sandy due to factors including  differences in the types of businesses affected and the larger number of  approved applications.
As shown in figure 3, ODA ultimately added loan officers to two agency  locations (Buffalo and Sacramento) after the peak months of receipts.
We reported in September 2014 that ODA told us it subsequently made  several changes regarding communication with the processing and  disbursement center and staffing increases. The center was required to  produce a new series of daily reports for ODA headquarters to improve  communication during future disasters. Specifically, these reports include  more detailed information on production rates, number of applications  submitted, and size of the application backlog. ODA also created a  standard template for requesting and justifying additional staff that  included information such as current and expected performance. At the  time of our report, SBA also was determining whether it needed to add  permanent loan processing staff to offices other than the processing and  disbursement center to respond to disasters.
section_title: SBA Took Actions to Address Other Processing Challenges
paragraphs: To address challenges with providing timely assistance following  Hurricane Sandy, SBA made various changes to its loan processing  approach, DCMS, and loan officer training. However, as we stated in  2014, because SBA has not received a large volume of applications since  Hurricane Sandy, it is too early to determine whether these changes will  improve the timeliness of SBA’s response for future disasters similar in  magnitude to Sandy.
Loan processing approach: SBA used to process loans in the order  in which they were received, regardless of whether the applicant was  a business or homeowner. After Sandy, SBA received more than four  times as many home loan applications as business applications, and  these home loan applications were received earlier. As a result,  business owners faced delays due to the large number of home loan  applications submitted ahead of them. In October 2013, SBA put in  place two separate application tracks for home and business loans.
DCMS challenges: Over the course of its response, SBA  encountered various challenges with DCMS, including server  hardware crashes and periods of system latency (slowness and  freezing), which added to some delays faced by business owners in  receiving disaster assistance. In 2014, we reported that according to  SBA, the agency was taking steps to improve DCMS for future  disasters. For example, SBA planned to institute a process for  updating system equipment (including conducting a baseline inventory  and implementing a plan to replace outdated hardware). SBA officials  said the inventory had been validated and the plan completed. In  addition, SBA officials said the agency made improvements to its  DCMS Help Desk, which responds to loan officers who experience  system issues.
Loan officer training: Most of the additional processing staff,  particularly in Sacramento, were new hires, but SBA found that the  new officers were not effectively trained to quickly respond to the  backlog of business applications. In 2014, we reported that SBA  revised its loan officer training for future disasters. For instance, all  loan officers had to complete a revised training course for processing  business loans. SBA officials also noted that the agency reorganized  loan officers into two groups that specialize in processing home and  business loans based on the previously mentioned changes to the  loan processing approach.
section_title: Organizations Identified Challenges Businesses Faced in Receiving Timely Assistance
paragraphs: Select Small Business Development Centers and local business  organizations in New York and New Jersey with which we met in 2014  identified two main challenges (from the perspective of small businesses)  that affected the timeliness of assistance: time-consuming loan  documentation requirements and lack of SBA follow-up. We reported on  steps SBA said it would take to address these two challenges.
Nearly all 14 development centers and local business organizations noted  that meeting documentation requirements for applications was time- consuming and onerous to business owners. SBA officials said that the  agency was taking several steps to streamline the documentation  requirements for applicants. Specifically, SBA examined the entire loan  application process to identify and eliminate documents that did not help  loan officers make a decision on an application. According to SBA  officials, the proposed changes to the required documentation were  drafted and would be incorporated by the end of 2014 in the disaster loan  program’s standard operating procedures. Furthermore, SBA took steps  to reduce documentation requirements for applicants with strong credit  scores by amending regulations to allow the agency to rely on credit  scoring rather than cash flow when determining an applicant’s ability to  repay.
More than half of the entities with which we met said that business  owners noted a lack of SBA contact after submitting their applications,  and many owners were unaware of the status of their application  throughout the process, including whether or not it had been received at  the processing center. Additionally, five entities noted a lack of continuity  with loan officers or case managers over the course of the application  process. Two of these five entities said that some business owners had  had up to eight different loan officers or case managers. In addition, these  five entities reported that submitted documentation and information were  lost when loan officers and case managers changed.
According to SBA officials, due to the physical damage caused by  Hurricane Sandy, it was difficult for loan officers and case managers to  contact applicants by telephone or e-mail despite their efforts. SBA  officials told us that an applicant might have more than one loan officer or  case manager for several reasons, such as when application numbers  increased or if current loan officers or case managers had to supervise  newer staff. SBA officials also told us that some documents could be  misplaced due to the multiple ways applicants could submit information to  the processing and disbursement center. In addition, some documents  may not have been misplaced; rather, they may not yet have been  entered into DCMS and thus were unavailable for loan officers to view.
According to SBA officials in 2014, efforts to process electronic  application submissions more effectively would address these issues. The  officials said SBA expected to create an electronic portal that would share  information with applicants on the status of their applications and  documents received, thus increasing transparency and communication  during the loan application process.
section_title: Loan Approval, Withdrawal, and Cancellation Rates in Selected Disasters
paragraphs: As explained previously, for our 2014 report we compared SBA’s  approval, withdrawal, and cancellation rates for business loans after  selected disasters. In comparison with the other disasters, the approval  rate after Sandy was not consistently higher or lower, but withdrawal and  cancellation rates were consistently higher.
Approval rates. The approval rate for business loan applications for  Hurricane Sandy (42 percent) was lower than for Hurricanes Katrina, Rita,  and Wilma, higher than for Hurricane Ike, and comparable to the rate for  Hurricane Irene. However, when taking home loan applications into  account, Sandy resulted in the highest total approval rate (53 percent) in  comparison to the five other disasters.
The primary reasons for which SBA declined business loan applications  after each of the disasters remained the same: lack of repayment ability  and unsatisfactory credit history. Following Hurricane Sandy, SBA  received 14,938 business loan applications and declined 5,663 as of  January 31, 2014. Of the declined applications, SBA cited lack of  repayment ability as at least one of the reasons on 2,644 applications  (47 percent), and unsatisfactory credit history as at least one of the  reasons on 2,317 applications (41 percent).
Withdrawals. Application withdrawal rates were higher after Sandy than  after the other disasters. Of the 14,558 original business loan applications  that had reached a decision status by January 31, 2014, 4,715  (approximately 32 percent) had been withdrawn by SBA or the  applicant. The withdrawal rates for the previous disasters ranged from  approximately 18 percent (Ike) to approximately 23 percent (Katrina and  Wilma). For Hurricane Sandy, SBA withdrew approximately 60 percent of  the 4,715 applications, while applicants requested withdrawal for the  remaining 40 percent. The 60 percent figure for SBA-initiated withdrawals  was higher than for two of the other disasters and lower for three. The  leading reason for withdrawals after Sandy was the applicant’s failure to  provide SBA with all requested information (1,542 withdrawals or  approximately 33 percent of all withdrawn applications).
Cancellations. Of the 4,180 business loan applications SBA approved for  Hurricane Sandy, 1,578 (38 percent) had been cancelled as of January  31, 2014—a rate higher than for the other disasters. The other  cancellation rates ranged from approximately 22 percent (Wilma) to  approximately 30 percent (Ike and Katrina). Of the business loans  cancelled after Hurricane Sandy, borrowers requested cancellation of  1,171 loans (74 percent), while SBA cancelled 407 (26 percent). The  most common reason for SBA-initiated cancellations was “failure to  complete and return all loan closing documents,” representing 336  cancellations (21 percent).
According to SBA, factors affecting the withdrawal and cancellation rates  for Hurricane Sandy included higher rates of insurance coverage in the  footprint of the disaster area and the availability of alternative sources of  recovery aid (such as grants). Officials told us that the rollout of programs  funded by the Department of Housing and Urban Development’s  Community Development Block Grant program began earlier than in past  disasters, and that state grantees—specifically New Jersey and New  York—obtained those funds and accepted applications for their respective  state grant programs shortly after the disaster struck.
Half of the entities with which we spoke—selected business development  centers and local business organizations in New Jersey and New York— provided perspectives on the most common reasons why applications  were withdrawn after Sandy. For instance, business owners commonly  withdrew applications because they had changed their plans for funding  their recovery (for example, they may have received insurance claim  proceeds or state grants). Entities also noted other reasons, such as  frustration with waiting times for loan processing and a desire not to incur  additional debt.
section_title: SBA Has Not Implemented Three Guaranteed Disaster Loan Programs Required by Law
paragraphs: In 2014 we reported that 6 years after Congress passed the Small  Business Disaster Response and Loan Improvements Act of 2008, SBA  had not piloted or implemented three guaranteed disaster loan programs,  which therefore had not been available after Hurricane Sandy. As  previously discussed, the act mandated the creation of the Immediate  Disaster Assistance Program (IDAP), the Expedited Disaster Assistance  Loan Program (EDALP), and the Private Disaster Assistance Program  (PDAP). According to SBA officials, the agency opted to implement IDAP  first, because the loan limit was lower than in the other two programs and  SBA received appropriations to pilot this program.
We had examined SBA’s implementation plans before 2014. In a July  2009 report, we noted that SBA was planning to implement requirements  of the 2008 act, including pilot programs for IDAP and EDALP. SBA  requested funding to carry out requirements for the two programs in the  President’s budget for fiscal year 2010 and received subsidy and  administrative cost funding of $3 million in the 2010 appropriation, which  would have allowed the agency to pilot about 600 loans under IDAP. The  agency issued regulations for IDAP in October 2010. In May 2010, SBA  told us that its goal was to have the pilot for IDAP in place by September  2010. We concluded that because the implementation process already  was behind schedule, it would be important for SBA to ensure it had a  plan to implement remaining requirements of the 2008 act and report on  its progress to Congress. We therefore recommended that SBA develop  an implementation plan and report to Congress on progress in addressing  all requirements within the act and include milestone dates for completing  implementation and any major program, resource, or other challenges the  agency faced.
However, as of August 2014, the pilot program for IDAP had not yet  started. According to SBA officials, the program had not been  implemented for two primary reasons: (1) information technology  challenges and (2) feedback from lenders indicating that program  requirements might hinder lender participation.
First, the electronic systems that would be used to process IDAP  applications did not interface smoothly. According to SBA officials, IDAP’s  readiness was in part based on the ability of E-Tran, the loan processing  system for the 7(a) program, to interface with DCMS, the loan processing  system for the Disaster Loan Program. Officials said that a new  information technology system was being developed—SBA One. They  also said that for IDAP application processing, it would be more efficient  to make DCMS interoperable with the new system than to enhance  E-Tran. At the time of our 2014 report, SBA anticipated that SBA One  would be operational by early 2015.
Second, SBA told us that it received feedback from lenders on challenges  that could discourage lenders from participating in the program, but  documentation of the feedback was limited. In March 2010, SBA  organized a forum with 11 lenders in the Gulf Coast to obtain their views  on IDAP. Lenders stated the program had to have a simple eligibility  determination and confirmation that a potential borrower had applied for  an SBA disaster loan before the lender would approve an IDAP loan.  Lenders also expressed concerns about the possibility of guarantee  denials if an applicant did not take out an SBA disaster loan. According  to SBA, in 2010 the agency also conducted conference calls with Iowa  lenders who expressed similar concerns about IDAP. However, SBA did  not document either the Gulf Coast forum or the conference calls at the  time of the events. Instead, SBA officials relied on the memory of staff  present for these discussions. In response to our request for information  on these efforts, in July 2014 SBA provided a one-page summary. The  summary included a list of the Gulf Coast lenders but not of Iowa lenders,  and the discussion of lenders’ concerns was minimal.
In addition, according to SBA officials, in November 2012 the agency  solicited informal feedback from lenders in Hurricane Sandy-affected  areas about the usefulness of IDAP and its features. According to SBA  officials, lenders were concerned about the statutory requirement that  provides an applicant a minimum of 10 years to repay the IDAP loan if a  loan through the Disaster Loan Program was not approved. Lenders  expressed disinterest in servicing a small loan amount (up to $25,000) for  a term that long. SBA officials noted that lenders typically did not offer  small-dollar loans such as those made under IDAP. SBA’s IDAP  regulations allow a lender to charge a borrower an optional application  fee to recoup some of the loan processing costs, but the one-time fee  may not exceed $250 and an IDAP lender generally may not charge a  borrower any additional fees. According to SBA officials, they also did  not document lender feedback from this outreach effort. SBA officials told  us that they obtained feedback on IDAP requirements from three banks,  although officials could recall the identity of only one bank.
In July 2014, SBA officials told us that the agency was still trying to  conduct the IDAP pilot by attempting to identify solutions to increase  lender participation. However, officials noted that the lenders with which  they met were not willing to participate in IDAP (or an IDAP pilot) without  changes to the statutory servicing term and the SBA regulatory fee.  Based on lender feedback, SBA officials said that the current statutory  requirements, such as the 10-year loan term, made a product like IDAP  undesirable and that lenders were not likely to participate in IDAP unless  the loan term were decreased to 5 or 7 years, for example. Congressional  action would be required to revise statutory requirements, but SBA  officials said they had not discussed the lender feedback with Congress.  SBA officials also told us the agency planned to use IDAP as a guide to  develop EDALP and PDAP, and until challenges with IDAP were  resolved, did not plan to implement these two programs.
As a result of not documenting, analyzing, or communicating lender  feedback, SBA might have lacked reliable information to guide its own  actions and to share with Congress about what requirements should be  revised to encourage lender participation. Such information could be  obtained by conducting further outreach to lenders and documenting this  outreach in accordance with federal internal control standards, which  state that all transactions and other significant events should be promptly  recorded to maintain their relevance and value to management in  controlling operations and making decisions. We concluded that not  sharing information with Congress on challenges to implementing IDAP  might perpetuate the difficulties SBA faced in implementing programs  intended to provide assistance to disaster victims. Therefore, in  September 2014, we recommended that SBA conduct a formal  documented evaluation of lenders’ feedback to inform both itself and  Congress about implementation challenges and about statutory changes  that might be necessary to encourage lenders’ participation in IDAP, and  then report to Congress on the challenges SBA faced in implementing  IDAP and on statutory changes that might be necessary to facilitate  implementation.
SBA officials recently provided us with a two-page summary of a  discussion conducted with 23 lender and service provider participants in  SBA’s 7(a) program—17 bank lenders, 3 certified development  companies, and 3 lender service providers—at a National Association of  Government Guaranteed Lenders conference in October 2014.  Participants were provided general information on IDAP, and were asked  to comment on specific statutory and regulatory requirements related to  loan terms, maximum allowable interest rates, and restrictions on lender- imposed application fees. According to SBA’s summary, participants  expressed unwillingness to participate in a program with these  requirements. While SBA thus has taken one step to solicit and document  lender feedback, it has not adopted a plan for the steps the agency will  take to implement IDAP (and by implication, the other two loan programs)  or to reach a determination on whether IDAP or the other loan programs  should be implemented.
Chairman Chabot and Ranking Member Velázquez, this concludes my  prepared statement. I would be happy to answer any questions at this  time.
section_title: GAO Contacts and Staff Acknowledgments
paragraphs: For further information on this testimony, please contact William B. Shear  at (202) 512-8678 or shearw@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this statement. GAO staff who made key contributions to this testimony  are Marshall Hamlett (Assistant Director), Vaughn Baltzly (analyst-in- charge), John McGrail, and Barbara Roesmann.
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