The Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1974 (Stafford Act) sets forth requirements for the federal response to presidentially declared disasters. A presidential disaster declaration puts into motion long-term federal recovery programs, including SBA’s Disaster Loan Program. While SBA is known primarily for its financial support of small businesses, the agency also plays a critical role in assisting the victims of natural and other declared disasters. SBA’s Disaster Loan Program is the primary federal program for funding long-range recovery for private-sector, nonfarm disaster victims and is the only form of SBA assistance not limited to small businesses. For an SBA disaster loan to be approved, a disaster victim must demonstrate an ability to repay the loan and must provide collateral for loans over a certain value. The Small Business Act authorizes SBA to make available the following two types of disaster loans to small businesses: Physical disaster loans: These 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. Almost any business concern or charitable or other nonprofit entity whose property is damaged in a declared disaster area is eligible to apply for a physical disaster loan; however, small businesses in agriculture-related industries— also known as agricultural enterprises—are not eligible. Economic injury disaster loans: These loans provide small businesses that are not able to obtain credit elsewhere with necessary working capital until normal operations resume after a disaster declaration. They cover operating expenses the business could have paid had the disaster not occurred. The Small Business Act restricts economic injury disaster loans to small businesses. Agricultural enterprises are also not eligible for economic injury disaster loans. Table 1 provides a description of the characteristics of each of these loans. SBA procedures generally require small businesses to submit an application for a physical disaster loan no later than 60 days following the disaster declaration and no later than 9 months after this date for an economic injury disaster loan. SBA may authorize an extension of the filing period. SBA procedures also generally require small businesses to arrange for and obtain all loan funds within 6 months from the date of the loan authorization and agreement. Due to the overwhelming need for moderate-sized small business loans in severely distressed Gulf Coast communities following Hurricanes Katrina and Rita, SBA implemented the GO Loan Pilot in November 2005 specifically to encourage lenders to lend in these communities and to assist small businesses that could not obtain credit elsewhere with working capital and other general-purpose business loans. The pilot program was originally intended to last less than 1 year; however, because of the continuing and substantial needs of small businesses in the area, SBA has extended the program until September 30, 2010. As part of the program, SBA may provide an 85 percent guaranty to qualified lending partners, such as banks, that agree to make expedited loans available under SBA’s 7(a) Loan Program of up to $150,000 to small businesses located in communities affected by the disasters. Small businesses apply directly to qualified lenders under the program, who evaluate their creditworthiness and determine whether they require an SBA guaranty to make the loan. SBA agrees to make a decision on whether to apply a guaranty to a loan within 24 hours. While SBA prescribes the maximum interest rate lenders can charge, the lender and borrower negotiate the actual rate. Lenders can charge a maximum interest rate of 6.5 percentage points over the prime rate for loans of $50,000 or less and a maximum rate of 4.5 percentage points over the prime rate for loans over $50,000. HUD’s CDBG Program, created in 1974, is the most widely available source of federal assistance to state and local governments for neighborhood revitalization, housing rehabilitation activities, and economic development. Eligible activities include housing assistance, historic preservation, real property acquisitions, mitigation, demolition, and economic development. Because of the funding mechanism that the CDBG Program already has in place to provide federal funds to states and localities, the program is widely viewed as a convenient tool for disbursing large amounts of federal funds to address emergency situations. Over the past two decades, CDBG has repeatedly been adapted as a vehicle to respond to federal disasters, such as floods, hurricanes, and terrorist attacks. When the CDBG Program is used to provide disaster relief funds, many of the statutory and regulatory provisions governing the use of CDBG funds may be waived or modified, thereby providing states with even greater flexibility and discretion. Following Hurricanes Katrina and Rita, Congress enacted three supplemental appropriations between December 2005 and November 2007, under which a total of $19.5 billion was made available in CDBG disaster relief funds to Alabama, Louisiana, Mississippi, and Texas. Louisiana received the largest amount of these funds—$13.4 billion (69 percent)—and Mississippi received about $5.5 billion (about 28 percent). Alabama and Texas received a combined $599 million—about 3 percent of the total. (See table 2.) Once HUD allocated CDBG disaster relief funds to the affected states, state-level development agencies were responsible for the administration and management of the funds. States are traditionally afforded broad discretion regarding how they decide to allocate CDBG funds to specific projects and programs. In the aftermath of the hurricanes, Congress provided additional flexibility to the states in their use of CDBG disaster relief funds. For example, lawmakers permitted HUD to waive certain regulations and statutes that would otherwise have been applicable, including, among other things, income targeting provisions and public service expenditure caps. Specifically, HUD was allowed to waive the threshold outlined in statute that 70 percent of total funds must be allocated to activities that primarily benefit low- and moderate-income persons. Instead, only 50 percent of the total funds had to be targeted on this basis, unless the Secretary of HUD found a compelling need to waive the targeting provision altogether. Specific language in the supplemental appropriations acts required states to develop and submit action plans to HUD detailing the proposed use of all funds. Upon submission, HUD reviewed the action plans for acceptance. These action plans served as state proposals for how states would use their share of CDBG disaster relief funds and included descriptions of eligibility criteria and how the funds would be used to address both urgent needs and long-term recovery and infrastructure restoration. For example, states can use CDBG disaster relief funds to help businesses retain or create jobs in disaster-impacted areas as an eligible economic development activity. Following Hurricanes Katrina and Rita, Louisiana and Mississippi implemented small business assistance programs using CDBG disaster relief funds. Louisiana implemented the following three programs: Bridge Loan Program: This program provided temporary working capital loans to businesses located in specified areas affected by the hurricanes. The loans generally had 6-month terms, but extensions were granted to some borrowers. They also contained an interest-free period of 180 days under certain circumstances. No new loans were originated after March 2006, as the state implemented the Business Recovery Grant and Loan Program. Business Recovery Grant and Loan Program: This program, launched in January 2007, targets assistance to small firms that are deemed to have a chance to survive, contribute to the economy, and maintain and create jobs. Small businesses receive low-cost loans on flexible terms, small grants to reimburse businesses for tangible losses, and technical assistance. Program eligibility has changed over time. For example, when the program was originally structured, only businesses with fewer than 25 employees were eligible; however, according to state officials, the need for these grants and loans was too great, and they increased the employee limit to businesses with fewer than 100 employees. Additionally, state officials told us that they changed the eligibility requirements to allow start-up companies to participate in the program. They explained that this change was made to ensure that entrepreneurial opportunities were encouraged in the state. Small businesses may use grant and loan funds for business operating costs, such as leases; insurance; or debt payment on new equipment, utilities, or inventory. When the program was initially implemented, the interest rate for loans was 0 percent for the term of the loan. Since then, the interest rate has been revised and is 0 percent for the first 2 years of the loan and 4 percent for the remainder of the loan term. Loan terms range from 5 to 7 years. Technical Assistance Program: Louisiana developed this program to help small businesses adjust to the posthurricane business environment. Through the program, small businesses, including nonprofits, that have been adversely impacted by the hurricanes can receive technical assistance in areas such as business management, strategic planning, accounting, insurance, marketing, and legal matters. Additionally, entrepreneurs or individuals seeking to start a new firm in the impacted area are eligible for the program. State officials told us that the program was designed to complement the Business Recovery Grant and Loan Program, and that it provides assistance to small businesses that received grants or loans to help ensure that the funds are utilized effectively by small businesses. In 2009, Mississippi implemented one program specifically for small businesses, the Hancock County Job Generation Fund Program, with CDBG disaster relief funds. The program grew out of a grassroots effort by the Hancock County Chamber of Commerce to address the extraordinary needs of small businesses in Hancock County that sustained the most powerful forces of Hurricane Katrina and suffered unprecedented destruction. The program offers loans at a 2 percent interest rate to small businesses that were located in Hancock County 6 months prior to Hurricane Katrina and are committed to remaining there for at least 5 years. Unlike SBA disaster loans or loans made through Louisiana’s Business Recovery Grant and Loan Program, loans made through the Job Generation Fund Program can be converted into forgivable loans if the loan recipient meets certain requirements.