Farmers Home Administration and Small Business Administration Natural Disaster Loan Programs:

Budget Implications and Beneficiaries

CED-79-111: Published: Aug 6, 1979. Publicly Released: Sep 19, 1979.

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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.

Matter for Congressional Consideration

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Matter: It is recommended that Congress strengthen the criteria in the FmHA program in the manner described in the previous GAO report. The Congress needs to take this action if it wishes to restrict disaster loans to the amount of loss that exceeds drops in farm income in 1 year that would normally be expected in a farm operation. Further, if SBA continues to make disaster assistance loans to farmers, the Congress should also establish in this program the same minimum loss eligibility criteria.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Agriculture should direct the FmHA Administrator to clarify FmHA's test for credit elsewhere for all county supervisors and review all disaster assistance loans made in fiscal year 1978 for possible referral to other credit sources.

    Agency Affected:


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