GAO Report Finds SBA Didn’t Meet Timeliness Goal for Sandy Loans

A new report from the U.S. Government Accountability Office (GAO) has found that following Superstorm Sandy, the U.S. Small Business Administration (SBA) did not meet its timeliness goal for processing business loan applications.

GAO’s report, titled “Small Business Administration: Additional Steps Needed to Help Ensure More Timely Disaster Assistance,” was released on Thursday. The report found that from application receipt to loan decision, SBA took an average of 45 days to process physical business disaster loans and 38 days for economic injury loans. These averages exceeded SBA’s 21-day application processing goal.

According to the report, SBA said it was challenged by an unexpectedly high volume of loan applications that it received early in its response to the disaster, in addition to other challenges, such as technological issues.

SBA had estimated that application submissions would peak about seven to nine weeks after Sandy, but it received a larger volume of applications than were expected prior to that period.

While SBA officials told GAO that the agency has taken steps to respond to some challenges, it has not revised its disaster planning documents — including the Disaster Preparedness and Recovery Plan — to reflect the early volume of application submissions received after Sandy and the potential impact a similar experience could have on staffing, resources, and forecasting models for future disasters.

The report said if SBA does not take into account its experience with early application submissions after Sandy in its disaster planning documents, SBA may be unprepared for a large volume of early applications following future disasters, which could result in delays in loan funds for disaster victims.

The report said SBA approved 42 percent of business loan applications following Sandy. This rate was lower than those of Hurricanes Katrina, Rita, and Wilma, higher than that of Ike, and comparable to that of Irene (the five disasters that generated the most SBA disaster loan applications since 2005). GAO said that for Sandy and for previous disasters, SBA declined business loan applications mostly because of applicants’ lack of repayment ability and credit history.

Additionally, the report said, SBA has not implemented the guaranteed disaster loan programs Congress mandated in 2008, including the Immediate Disaster Assistance Program (IDAP) — a bridge loan program through private sector lenders providing disaster victims with up to $25,000 with a 36-hour application approval period.

GAO said SBA officials have told GAO they are trying to implement IDAP but have received feedback from lenders that some program requirements — such as a statutory minimum 10-year time frame for servicing the loan under certain circumstances — may discourage lenders from participating.

However, the report added, SBA has not conducted a formal documented evaluation of lenders’ feedback that would establish the basis for proposed changes to requirements for Congress to consider. Without an appropriately documented evaluation of its outreach to lenders, SBA may not have complete and reliable information for its reporting to Congress about its challenges with implementing the programs required by the act, GAO said in its report.

GAO said it recommends 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. GAO said SBA generally agreed with GAO’s recommendations.

‘Missteps’

U.S. Rep. Nydia M. Velázquez (D-N.Y.), who had requested the GAO study, said SBA was “caught flat-footed.”

“We all remember what it was like right after Sandy and businesses required immediate help,” Velázquez said in a statement. “They needed financial assistance in days, not months.”

“The agency was caught flat-footed,” said Velázquez. “Missteps, a lack of planning, and an inability to right the ship quickly left businesses frustrated and unable to secure the financing they needed.”

“Given GAO findings, New York’s small businesses deserve another opportunity to secure assistance from SBA,” said Velázquez. “This is the least we can do to help these businesses recover.”

Velázquez said that in order to provide relief to businesses still in need of resources, she will call on Congress to reopen the SBA’s Disaster Program to those affected by Sandy. Such a move was made after Hurricane Katrina and will provide New York City’s small businesses with another opportunity to secure low-cost financial assistance, said Velázquez.