crs_reports: R48959

Congressional Research Service reports with summaries, authors, and topic classifications.

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R48959 SBA Disaster Loan Credit Standards, Collateral Requirements, and Debt Collection 2026-05-27T04:00:00Z 2026-05-29T12:39:41Z Active Reports Anthony A. Cilluffo, Bruce R. Lindsay, Maria Kreiser   The U.S. Small Business Administration (SBA) provides low-interest, long-term loans to disaster survivors to allow them to repair or replace uninsured or underinsured property. About 80% of SBA disaster loans are made to individuals, either for real property damage (such as that to a house) or for personal property damage (such as that to a vehicle or other personal belongings). The other 20% of disaster loans are made to businesses and private nonprofit organizations, either to cover physical damage to business property or to cover financial obligations that could have been met had the disaster not occurred. In designing the disaster loan program, Congress and the SBA have sought to balance “sympathetic consideration” of the needs and circumstances of disaster survivors with the need to maintain program integrity and protect the federal government’s financial interests. Three key factors in this balance are (1) the credit standards required to obtain a disaster loan; (2) the amount and quality of collateral required to be pledged to secure a disaster loan; and (3) debt collection processes followed after default. Together, credit, collateral, and collection policies are designed to keep loan performance and program losses at levels that are deemed acceptable by Congress and the SBA. To secure an SBA disaster loan, an applicant must demonstrate that they are reasonably likely to repay the loan. The SBA relies on an applicant’s credit score to determine whether the applicant has an acceptable credit history; the applicant’s credit score further determines whether the applicant is eligible for a loan, what level of processing is required, and whether the applicant likely has access to credit elsewhere (which determines the loan’s interest rate). The applicant’s repayment ability is gauged on the applicant’s income and existing debt. Besides determining loan eligibility, the applicant’s estimated repayment ability contributes to decisions regarding monthly payment amount and loan maturity date. The SBA uses a multistep process for loan applications that is designed to quickly decline applications with clearly unacceptable credit histories or little repayment ability; faster rejections allow the SBA to more quickly refer applicants to the Federal Emergency Management Agency (FEMA) for possible grant assistance. Disaster loan applicants may be required to pledge specific assets as collateral for their loan. In the event of default, the SBA can seize and liquidate this collateral to repay the loan. Requiring more collateral for a loan may increase the likelihood that the SBA will be repaid or, after default, increase the amount the SBA is able to recover. However, higher collateral requirements may reduce access to the program by preventing applicants with insufficient collateral from accessing SBA disaster loans. Currently, disaster loans of $50,000 or less made for a presidentially declared major disaster do not require collateral. For disasters receiving declaration by the SBA Administrator, loans of $14,000 or less do not require collateral. For SBA home disaster loans that require collateral, the SBA’s collateral requirements are more lenient than those of most private lenders. For these loans, the SBA typically takes the borrower’s house as the only collateral, regardless of the house’s available equity. SBA business disaster loans have higher collateral requirements compared with SBA disaster loans for individuals or households. Businesses generally must have collateral with available equity at least equal to the value of the disaster loan. Business disaster loans also often require personal guarantees from business principals. Congress and the SBA have, at times, changed the dollar-value threshold above which borrowers are required to pledge collateral; usually, they have increased the threshold. Stated justifications for the changes—when provided—often mention the need to account for inflation occurring since the last change, or a desire to simplify the program. In the case of loan default and liquidation of collateral, debt collection represents the last opportunity for the federal government to recover its capital. Before a loan defaults, the SBA uses a variety of tools, including financial hardship relief and loan modifications, to help borrowers return to making regular monthly payments. If those options fail, the SBA can refer the loan to the Department of the Treasury for enhanced debt collection efforts, including offsetting (holding back) the borrower’s wages or federal payments to the borrower (such as federal tax refunds, contractor payments, or Social Security benefits). A borrower who defaults on an SBA disaster loan also becomes ineligible for most federal loans in the future. https://www.congress.gov/crs_external_products/R/PDF/R48959/R48959.4.pdf https://www.congress.gov/crs_external_products/R/HTML/R48959.html

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