From the U.S. Government Accountability Office, www.gao.gov

Transcript for: Disaster Loans to Small Businesses Following Hurricane
Sandy

Description: Audio interview by GAO staff with William Shear, Director,
Financial Markets and Community Investment

Related GAO Work: GAO-14-760: Small Business Administration: Additional
Steps Needed to Help Ensure More Timely Disaster Assistance

Released: October 2014


[ Background Music ]

[ Narrator: ] Welcome to GAO's Watchdog Report, your source for news and
information from the U.S. Government Accountability Office. It's October
2014. On October 29th, 2012, Hurricane Sandy made landfall, causing an
estimated $65 billion in property damage. In the wake of the storm, the
Small Business Administration provided physical disaster loans and
economic injury disaster loans to help businesses and individual
homeowners recover. A team led by Bill Shear, a director in GAO's
Financial Markets and Community Investment team, recently reviewed SBA's
administration of its disaster loans. GAO's Sarah Kaczmarek sat down
with Bill to talk about what they found.

[ Sarah Kaczmarek: ] Did SBA do a good job getting loans to small
businesses after Hurricane Sandy?

[ Bill Shear: ] Our review focused on responses to small businesses. And
I have a mixed message here. If you think of this historically, back to
Hurricane Katrina in 2005, SBA really did a completely inadequate job of
responding to disaster victims. And since that time, we have conducted a
lot of evaluations, Congress' direction, and there's been a lot of
congressional oversight to try to improve the program. We have seen,
that with this being the most major disaster since Katrina, that there
have been improvements in the program. However, we found that there's
still some very serious problems with SBA being timely in its response
to small businesses. For example, as of March 2013, 5 months after the
storm, business loans for which SBA reached a decision, had on average
been in processing for about 60 days. We also found that SBA was not
good at developing new products that were authorized by Congress that
could have been -- helped small businesses recover from this disaster.

[ Sarah Kaczmarek: ] Your report discusses SBA disaster loan approval
rates. How did those rates compare to other recent disasters?

[ Bill Shear: ] This is really an excellent question, and you might be
shocked by the answer because the approval rate on these loans was about
42 percent, which sounds low to a lot of people, but what's important is
that this is not a grant program like other agencies might run. It is a
loan program. They're subject to underwriting. And so the agency takes
into account characteristics of the small business owners, such as their
repayment ability and their creditworthiness. The 42 percent was very
similar to other hurricanes of major magnitude over the years. So again,
comparing to Hurricane Katrina, Hurricane Ike in 2008, Hurricane Irene
in 2011, the approval rates were similar and they were around in the 40
percent range.

[ Sarah Kaczmarek: ] Now, you mentioned that SBA could still be doing
more, so what recommendations is GAO making to SBA in this report?

[ Bill Shear: ] We're making 2 major recommendations to SBA. The first
one deals with timeliness. And what we're calling on SBA to do is really
to incorporate changes due to electronic transmission of applications
that causes a greater speed of applications right after a disaster so
that SBA is better prepared to staff up and to meet the needs of small
businesses following major catastrophes such as Sandy. The second
recommendation has to do with a unmet need that occurred in Sandy and
can certainly occur in the future, which is you had many small business
owners such as owners of grocery stores, small grocery stores, small
restaurants, and they were really in need of bridged loans. And there
are loan programs that have been authorized by Congress that SBA has not
developed. So we call upon SBA to reach out to the lending community to
figure out what is needed for these programs to work and if necessary
report to Congress for statutory changes that may be necessary to make
these programs successful so they can provide bridged loans to some of
these small businesses.

[ Sarah Kaczmarek: ] Finally, for small business owners and taxpayers,
what do you see as the bottom line of this report?

[ Bill Shear: ] I think the bottom line here is that timeliness is
extremely important when you talk about small businesses that are
victims of major disasters, such as Hurricane Sandy. And having loans
that serve specific and immediate needs of those small businesses is
very important. So both of our recommendations and our analysis points
in the direction for the work SBA has to do so it is better prepared to
serve disaster victims in the future.

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[ Narrator: ] To learn more, visit GAO.gov and be sure to tune in to the
next episode of GAO's Watchdog Report for more from the congressional
watchdog, the U.S. Government Accountability Office.