Farmers Home Administration and Small Business Administration Natural Disaster Loan Programs

Budget Implications and Beneficiaries Gao ID: CED-79-111 August 6, 1979

The Small Business Administration (SBA) disaster assistance loan volume increased from $200 million in 1977 to $2.5 billion during fiscal 1978, while Farmers Home Administration (FmHA) disaster assistance loans increased from $1.2 billion to $3.4 billion for the same period. The increase caused a severe impact on the SBA budget, but had little impact on the FmHA budget. Because a uniform factor for measuring disaster could not be found, GAO was unable to determine the correlation existing between disaster severity and the amount of loans made. Since FmHA has developed an expertise for dealing with farmers' unique needs, the need for SBA to make natural disaster assistance loans to farmers seems questionable.

In a review of a sampling of SBA and FmHA loans, GAO found that many loans went to borrowers who could get credit from other sources. A FmHA test to screen out those who could get credit elsewhere was ignored or received only cursory attention. Limiting the disaster assistance loans to borrowers unable to obtain credit from other sources could target the loans to disaster related needs. The recommendations in a 1978 GAO report concerning FmHA and SBA disaster assistance loan programs are still valid, because the problems that prompted them still exist. These recommendations are: to amend the Small Business Act so that SBA would no longer be authorized to make disaster loans to farmers; if the Small Business Act is not amended in this manner, Congress should require the two agencies to work together to achieve consistency; Congress should maintain the FmHA credit-elsewhere requirement and enact legislation to impose a similar requirement on the SBA program; and the Secretary of Agriculture should direct FmHA to propose legislation revising the agency's minnimum loss criteria. The Department of Agriculture has been reluctant to propose such legislation.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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