Better planning urged for disaster loan program

The Small Business Administration needs to enhance and complete planning for its Disaster Loan Program and improve its internal funding process to address shortcomings uncovered during the 2005 hurricane season, according to auditors and lawmakers.

The Government Accountability Office on Wednesday released a report (GAO-07-114) finding that while SBA has taken steps to improve its processing of loans to homeowners, renters and businesses of all sizes in the wake of a disaster, gaps remain in planning.

GAO found SBA followed through on an earlier recommendation to expand its computer capacity to allow more loan applications to be handled simultaneously. But the agency has not acted on recommendations to consider disaster modeling programs like those used at other agencies and in the private sector to inform its planning process.

SBA failed to set a timeline to complete key elements of its disaster planning process, including how to hire and train personnel to process additional loans in response to a disaster, GAO said. Auditors also noted that the agency has not determined how it will quickly obtain crucial office space, an aspect of operations that hindered the agency's response to the 2005 hurricanes.

Meanwhile, Senate lawmakers on Wednesday introduced legislation that would require SBA to address those problems, as well as better manage funding for the Disaster Loan Program.

"This GAO report makes clear that more information and better planning is needed to ensure adequate services and funding will always be available for those in need after a disaster, and that's what our bipartisan legislation does," said Sen. John Kerry, D-Mass., chairman of the Senate Committee on Small Business and Entrepreneurship and a co-sponsor of the bill.

Referring to emergency funding provided last year to prevent the loan program from shutting down, Kerry said, "We're working to prevent a 'sky is falling' scenario that results in multiple last-minute funding requests. The uncertainty that inherently comes with a disaster shouldn't translate into uncertainty over money for loans, or even whether there's a staffer to process your application or return your phone call."

The Small Business Disaster Loan Reporting Act would require SBA to submit monthly accounting reports to Congress on loan processing and disbursals for all disasters, and to report daily following any particular disaster. It would also require reporting on contracts awarded in response to a disaster, including breakouts of contracts to small and other disadvantaged businesses.

Responding to the GAO report, SBA officials said they generally concurred with the conclusions reached. They cited numerous steps taken to improve the disaster loan program, including implementing a new case management system and securing additional office space to serve as a surge capacity.

During a House Small Business Committee hearing, witnesses raised questions about other aspects of the loan program.

Donna Colosino, who along with her husband owns a small Louisiana company that sells power generation equipment to large industrial clients, testified about the difficulties her firm faced in obtaining a disaster loan.

She said the $250,000 loan for which she applied more than a year ago has not yet been fully disbursed, but a $10,000 initial payment last May started the clock ticking on a one-year grace period to begin repayment. She said she has been informed that in May, she will begin making payments on the full $250,000 loan amount despite having received only $10,000.

Colosino said she has been asked to send full documentation of her case more than a dozen times, and has seen her application handed off to a new agency representative numerous times. She often has had to start from scratch after handoffs. She added that her case is far from unique, and typifies how local businesses have interacted with the agency.

"Working with SBA after a disaster is like having a second job," Colosino said. "I swear to you on my father's grave that this is the story -- I am not an anomaly."