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Would your Institution Embrace an SBA Loan Program that Funded $25,000 Bridge Disaster Loans with a 85% Guaranty?

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July 14, 2015

By Bob Coleman
Editor, SBA Hot Topic Tuesday

SBA doesn’t think you would.

Congress appropriated $3 million for the Immediate Disaster Assistance Program pilot program back in 2010.

But, a scathing GAO report says SBA hasn’t implemented the program five years later for two reasons — technology issues and perceived lender’s reluctance to support the program.

The program is designed to assist those immediate cash after a disaster — within 36 hours from application.

The GAO writes, “Entities with whom we spoke said that a program like IDAP would be useful, as it could provide business owners with a short-term infusion of capital to complete tasks such as debris removal, repairing physical damage, and purchasing inventory.

“On average, it took SBA 45 and 38 days to process physical business disaster loan and EIDL applications resulting from Hurricane Sandy.

“SBA received subsidy and administrative cost funding totaling $3 million in the 2010 appropriation, which would allow the agency to pilot test about 600 loans.”

But, E-Tran does not interface with DCMS (the Disaster Loan Program’s electronic loan processing system).

Now for the lender’s reluctance issue.

“SBA told us that they received feedback from lenders indicating challenges that may discourage lenders from participating in the program, although SBA’s documentation of this feedback is limited. In March 2010, SBA organized a forum with 11 lenders in the Gulf Coast to obtain their views on IDAP.”

“Lenders stated that the program had to have simple eligibility determination, as well as confirmation that a potential IDAP borrower had applied for an SBA disaster loan before the lender would approve an IDAP loan.

“Lenders also expressed concerns about the possibility of guarantee denials if an applicant did not take out an SBA disaster loan.

“In addition, according to SBA officials, in November 2012 the agency solicited informal feedback from lenders in the Hurricane Sandy-affected area about the usefulness of IDAP and its features.

“According to SBA officials, lenders were concerned about the statutory requirement that provides an applicant a minimum of 10 years to repay the IDAP loan if a loan through the Disaster Loan Program is not approved.

“In addition, according to SBA, in 2010 the agency also consulted with Iowa lenders in flood-prone regions within the state via conference calls and lenders expressed similar concerns about IDAP.

“Lenders also expressed disinterest in servicing a small loan amount for a term that long. SBA officials noted that small-dollar loans such as those made under IDAP are not products that lenders typically offer. In addition, SBA’s IDAP regulations allow a lender to charge a borrower an optional application fee to recoup some of the lender’s loan processing costs, but the one-time fee may not exceed $250 and an IDAP lender generally may not charge a borrower any additional fees.

In July 2014, SBA officials told us that the agency is still trying to conduct the IDAP pilot by attempting to identify solutions to increase lender participation. However, officials also noted that the lenders they met with were not willing to participate in IDAP (or an IDAP pilot) without changes to the statutory servicing term and the SBA regulatory program fee. Based on lender feedback, SBA officials said that the current statutory requirements, such as the 10-year loan term, make a product like IDAP undesirable and that lenders are not likely to participate in IDAP unless the loan term is decreased—for example, to between 5 and 7 years.

Let’s give SBA your feedback.

Would you participate in IDAP as outlined?

Yes
No

Would you participate in IDAP if you were confident the guaranty would be honored under the proposed terms?

Yes
No

What changes would your institution need in order to be willing to participate in IDAP?

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