oversight

Small Business Administration: Response to September 11 Victims and Performance Measures for Disaster Lending

Published by the Government Accountability Office on 2003-01-29.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

               United States General Accounting Office

GAO            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
               a
                                               January 2003


                                               SMALL BUSINESS ADMINISTRATION

                                               Response to September 11 Victims and
Highlights of GAO-03-385, a report to the      Performance Measures for Disaster
Chairman, Committee on Small Business,
House of Representatives                       Lending



The September 11 terrorist attacks             As part of its response to the September 11 terrorist attacks, SBA modified
and subsequent federal action had              several aspects of its Disaster Loan Program and its processes. For example,
a substantial impact on businesses             SBA increased the maximum loan amounts available and decreased the
in both the declared disaster areas            amount of documentation required for certain loans. By the end of fiscal
and around the nation. In the                  year 2002, approximately $1 billion in loans had been approved for victims of
aftermath of the attacks, the
Congress, among other actions,
                                               the attacks. On average, SBA processed business loans to September 11
appropriated emergency                         victims in an average 13 days compared with 16 days for business loans to
supplemental funds to the Small                other disaster victims in fiscal year 2001.
Business Administration (SBA) to
aid September 11 victims. Given                Like other federal programs, SBA has developed a multiyear strategic goal
the uniqueness of this disaster and            for the Disaster Loan Program—helping families and businesses recover
changes in the program, GAO                    from disasters—and has developed annual goals and measures to assess its
analyzed SBA’s lending to                      yearly progress toward attaining their strategic goals. GAO reviewed the
September 11 victims, as well as               measures and found that they have numerous limitations. For instance,
the loan program’s performance                 these measures do not capture the notable progress the program has made
goals and measures.                            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
SBA should                                     responding to the September 11 terrorist attacks. GAO attributes some of
                                               these limitations to the nature of the measures SBA uses to describe the
•    revise the performance                    performance of the Disaster Loan Program, while others can be attributed to
     measures for disaster lending,            the description of the program’s performance. Without better performance
•    expand its current research to            measures and plans, the Congress does not have an accurate description of
     improve its measures and                  SBA’s annual progress toward helping Americans recover from disasters.
     evaluate program impact, and
•    revise the disaster section of
     the performance plan.

SBA generally agreed with GAO’s
recommendations.




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



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.
Contents



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



                             Page i                                       GAO-03-385 SBA Disaster Lending
Contents




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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Page ii                                                  GAO-03-385 SBA Disaster Lending
A
United States General Accounting Office
Washington, D.C. 20548



                                    January 29, 2003                                                                               Leter




                                    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).




                                    Page 1                                                    GAO-03-385 SBA Disaster Lending
                   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




                   Page 2                                         GAO-03-385 SBA Disaster Lending
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 output-
oriented 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).




Page 3                                                  GAO-03-385 SBA Disaster Lending
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.”




             Page 4                                                     GAO-03-385 SBA Disaster Lending
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).




Page 5                                                   GAO-03-385 SBA Disaster Lending
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



Page 6                                                       GAO-03-385 SBA Disaster Lending
                         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
                         Congress faced the challenge of responding to the lingering effects of the
Responded to Small       attacks and subsequent federal actions on small businesses throughout the
Businesses Affected by   country. SBA responded first in Lower Manhattan, meeting with potential
                         borrowers within 2 days of the attacks. Its response expanded as areas
the September 11         near the site of the attack on the Pentagon and more of the New York City
Attacks                  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).




                         Page 7                                                GAO-03-385 SBA Disaster Lending
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
                         efforts. The President declared the attack on the World Trade Center a
Nationwide               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.




                         Page 8                                                   GAO-03-385 SBA Disaster Lending
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.




                                        Page 9                            GAO-03-385 SBA Disaster Lending
                             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,
                                                                                   and technical services
                                                 17%

                                                                                   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.
                             Small business owners’ complaints, which SBA officials regarded as
Program in Response to
                             valuable feedback, involved issues such as: (1) the effect of the attacks on
Complaints from Small        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



                             Page 10                                                    GAO-03-385 SBA Disaster Lending
                                         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



                                         Page 11                                         GAO-03-385 SBA Disaster Lending
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 inflation-
adjusted size standards to all businesses applying for September 11 loans. Thus, more
businesses could apply for loans. See appendix III for details.




Page 12                                                    GAO-03-385 SBA Disaster Lending
Center14 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.




Page 13                                                GAO-03-385 SBA Disaster Lending
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).




Page 14                                                   GAO-03-385 SBA Disaster Lending
                        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.
                        The performance plans describe the corresponding annual performance
Performance Measures    goals and the measures or indicators that will be used to assess progress in
and Plans Have          meeting them. During the past several years, we17 and SBA’s Inspector
                        General18 have reviewed SBA’s performance plans and found the plans had
Limitations             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.




                        Page 15                                          GAO-03-385 SBA Disaster Lending
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
                                       a
1. Disaster Home Loan Currency
Rate
Target                             94%       95%        88%
Actual                                       95%          87
2. Disaster Home Loan
Delinquency Rate
                                       a
Target                                         2%        2%
                                                           a
Actual                              2%         2%
3. Underwriting Compliance Rate
                                       a         a
Target                                                  97%      97%
                                                                     a
Actual                             97%       97%        97%




19
     GAO-01-792.




Page 16                                          GAO-03-385 SBA Disaster Lending
                               (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
                                                                                                a                 a
                               Target                                                                                       81%b             80%                80%
                                                                                                                                                  a               a
                               Actual                                                     97%              97%               81%
                               Homes restored to pre-disaster
                               conditions
                               (Actual measure: Number of
                               home loans approved)
                               Target                                                                                                                    31,853
                                                                                                                                                                  a
                               Actual
                               Businesses restored to pre-
                               disaster conditions
                               (Actual measure: Number of
                               business loans approved)
                               Target                                                                                                                      7,011
                                                                                                                                                                  a
                               Actual
                               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



                               Page 17                                                                            GAO-03-385 SBA Disaster Lending
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



Page 18                                         GAO-03-385 SBA Disaster Lending
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.




Page 19                                                  GAO-03-385 SBA Disaster Lending
                           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



                           Page 20                                            GAO-03-385 SBA Disaster Lending
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.




Page 21                                                   GAO-03-385 SBA Disaster Lending
                               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



                               Page 22                                           GAO-03-385 SBA Disaster Lending
                     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 on-
                     site 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).




                     Page 23                                                  GAO-03-385 SBA Disaster Lending
                                            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 pre-
                 disaster lending      businesses                       businesses                  disaster condition
                                     • Timely response                • Jobs retained             • Businesses restored to pre-
                                     • Reduced application &          • Increased survival of       disaster 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.



                                            Page 24                                               GAO-03-385 SBA Disaster Lending
              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 pre-
              disaster 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



              Page 25                                        GAO-03-385 SBA Disaster Lending
                  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



                  Page 26                                         GAO-03-385 SBA Disaster Lending
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




Page 27                                         GAO-03-385 SBA Disaster Lending
Appendix I

Scope and Methodology                                                                      AA
                                                                                            ppp
                                                                                              ep
                                                                                               ned
                                                                                                 n
                                                                                                 x
                                                                                                 id
                                                                                                  e
                                                                                                  x
                                                                                                  Iis




             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



             Page 28                                         GAO-03-385 SBA Disaster Lending
Appendix I
Scope and Methodology




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.




Page 29                                       GAO-03-385 SBA Disaster Lending
Appendix II

SBA Disaster Response, Loan Processing, and
Loan Disbursement Procedures                                                                                                                                                                              Appendx
                                                                                                                                                                                                                Ii




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.




                                                                     Page 30                                                                             GAO-03-385 SBA Disaster Lending
Appendix III

Regulatory and Statutory Changes to SBA’s
Disaster Loan and 7(a) Program in Response
to the September 11 Terrorist Attacks                                                                                                            Appendx
                                                                                                                                                       iI




                                    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




                                                Page 31                                                      GAO-03-385 SBA Disaster Lending
                                                                    Appendix III
                                                                    Regulatory and Statutory Changes to SBA’s
                                                                    Disaster Loan and 7(a) Program in Response
                                                                    to the September 11 Terrorist Attacks




(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.




                                                                    Page 32                                                                             GAO-03-385 SBA Disaster Lending
Appendix IV

Data on SBA Disaster Loans Made to Victims
of September 11 Terrorist Attacks                                                                       Appendx
                                                                                                              iIV




SBA Responds to           SBA’s response to the September 11 disaster commenced immediately after
                          the terrorist attacks occurred, when SBA disaster officials established
Multiple Disaster Areas   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.




                          Page 33                                         GAO-03-385 SBA Disaster Lending
                                         Appendix IV
                                         Data on SBA Disaster Loans Made to Victims
                                         of September 11 Terrorist Attacks




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


                                                                            Maryland
                                            W.Va.




                                                                                  D.C.

                                              Virginia



                                         SBA Declarations

                                                Pentagon Contiguous

                                                Pentagon Immediate

Source: GAO analysis of SBA data.




                                         Page 34                                                GAO-03-385 SBA Disaster Lending
                                  Appendix IV
                                  Data on SBA Disaster Loans Made to Victims
                                  of September 11 Terrorist Attacks




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
                                  September 11 lending varied significantly by amount, geographic location
Loans to a Range of Small         of recipients, and the types of loans. Nearly half of the September 11 loan
Businesses Nationwide             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



                                  Page 35                                          GAO-03-385 SBA Disaster Lending
                                Appendix IV
                                Data on SBA Disaster Loans Made to Victims
                                of September 11 Terrorist Attacks




                                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).




                                Page 36                                                GAO-03-385 SBA Disaster Lending
                                             Appendix IV
                                             Data on SBA Disaster Loans Made to Victims
                                             of September 11 Terrorist Attacks




                                             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




                                             Page 37                                                    GAO-03-385 SBA Disaster Lending
Appendix IV
Data on SBA Disaster Loans Made to Victims
of September 11 Terrorist Attacks




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).




Page 38                                                   GAO-03-385 SBA Disaster Lending
                                                  Appendix IV
                                                  Data on SBA Disaster Loans Made to Victims
                                                  of September 11 Terrorist Attacks




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

                                            Expanded EIDL

                                                                               Other

                                                                               Administrative and support and waste
                                                        10%                    management and remediation services

                                                                10%            Accommodation and food services
                                      32%


                                                                  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%          Transportation
                                      10%        Manufacturing               43%                                    and warehousing


                                                                                                      11%           Information
                                     11%         Wholesale trade


                          22%                                                              21%
                                                 Professional, scientific,
                                                 and technical services
                                                 Other                                                              Professional, scientific,
                                                                                                                    and technical services
Source: GAO analysis of SBA data.




                                                  Page 39                                                     GAO-03-385 SBA Disaster Lending
Appendix V

Comments from the Small Business
Administration                                               Append
                                                                  x
                                                                  i
                                                                  V




              Page 40          GAO-03-385 SBA Disaster Lending
           Appendix V
           Comments from the Small Business
           Administration




(250110)   Page 41                            GAO-03-385 SBA Disaster Lending
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