SBA Disaster Loan Credit Standards, Collateral Requirements, and Debt Collection
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- Congressional Research Service
- Document type
- Report
- Date
- 2026-05-27
Report — SBA Disaster Loan Credit Standards, Collateral Requirements, and Debt Collection, dated 2026-05-27, issued by Congressional Research Service.
Full text
SBA Disaster Loan Credit Standards,
Collateral Requirements, and Debt Collection
May 27, 2026
Congressional Research Service
https://crsreports.congress.gov
R48959
SUMMARY
R48959
SBA Disaster Loan Credit Standards, Collateral
May 27, 2026
Requirements, and Debt Collection Anthony A. Cilluffo
The U.S. Small Business Administration (SBA) provides low-interest, long-term loans to disaster Analyst in Public Finance
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 Bruce R. Lindsay
house) or for personal property damage (such as that to a vehicle or other personal belongings). Specialist in American
The other 20% of disaster loans are made to businesses and private nonprofit organizations, National Government
either to cover physical damage to business property or to cover financial obligations that could
have been met had the disaster not occurred.
Maria Kreiser
In designing the disaster loan program, Congress and the SBA have sought to balance Senior Research Librarian
“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.
Congressional Research Service
SBA Disaster Loan Credit Standards, Collateral Requirements, and Debt Collection
Contents
Introduction ..................................................................................................................................... 1
Overview of SBA Disaster Loan Budgeting.................................................................................... 2
SBA Disaster Loan Credit Policy .................................................................................................... 4
Acceptable Credit History ......................................................................................................... 4
Repayment Ability .................................................................................................................... 5
Loan Acceptance and Approval Data ........................................................................................ 7
SBA Disaster Loan Collateral Policy .............................................................................................. 8
Collateral by Loan Type and Declaration Type ......................................................................... 9
Collateral for SBA Home Disaster Loans ........................................................................... 9
Collateral for SBA Business Disaster Loans..................................................................... 10
Collateral for Multiple Disaster Loans............................................................................... 11
Collateral Policy History .......................................................................................................... 11
SBA Disaster Loan Debt Collection Policy................................................................................... 14
Delinquency and Default......................................................................................................... 14
Debt Collection and Charge-Off ............................................................................................. 15
Concluding Observations .............................................................................................................. 17
Tables
Table 1. SBA Disaster Loan Credit Subsidy Rates and Loan Assumptions, FY2016-
FY2026 ......................................................................................................................................... 3
Table 2. Outcomes of SBA Disaster Loan Applications .................................................................. 7
Table 3. SBA Disaster Loan Collateral Requirements..................................................................... 9
Table 4. SBA Disaster Loan Collateral Thresholds ........................................................................ 11
Table 5. Timeline of SBA Actions Following Disaster Loan Delinquency ................................... 16
Contacts
Author Information........................................................................................................................ 18
Congressional Research Service
SBA Disaster Loan Credit Standards, Collateral Requirements, and Debt Collection
Introduction
The U.S Small Business Administration (SBA) has been a major source of disaster assistance
since the agency was established in 1953. The SBA disaster loan program offers direct, low-
interest, long-term loans for physical and economic damages to businesses, nonprofit
organizations, and small agricultural cooperatives. The SBA also provides disaster loans to
individuals and households.1
The SBA disaster loan program provides two types of disaster loans to small businesses and
nonprofit organizations:
1. Business physical disaster loans provide businesses located in a declared
disaster area with up to $2 million2 to repair or replace damaged physical
property, including machinery, equipment, fixtures, inventory, and leasehold
improvements3 that are not covered by insurance.
2. Economic injury disaster loans (EIDLs) provide businesses located in a
declared disaster area with up to $2 million4 to help meet financial obligations
and operating expenses that could have been met had the disaster not occurred.
EIDL proceeds can be used only for the working capital necessary to enable the
business or organization to alleviate the specific economic injury and to resume
normal operations. EIDL amounts are based on actual economic injury and
financial needs, regardless of whether the business suffered any property damage.
Business physical disaster loans and EIDLs are collectively referred to as “SBA business
disaster loans.”
The SBA disaster loan program also provides two types of disaster loans to individuals and
households:5
1. Personal property disaster loans provide creditworthy homeowners or renters
located in a declared disaster area with up to $100,000 to repair or replace their
damaged personal property.
2. Real property disaster loans provide creditworthy homeowners located in a
declared disaster area with up to $500,000 to repair or restore their primary
residence to its pre-disaster condition.
Personal property disaster loans and real property disaster loans are collectively referred
to as “SBA home disaster loans.”
Historically, the majority of disaster loans provided by the SBA (roughly 80%) are for
individuals and households.6
1 For more information about the Small Business Administration (SBA) disaster loan program, see CRS Report
R44412, SBA Disaster Loan Program: Frequently Asked Questions, by Bruce R. Lindsay.
2 The SBA can waive the $2 million maximum amount and provide a larger business physical disaster loan if the
business is a major source of employment in the area and meets other requirements. See 15 U.S.C. §636d.
3 Leasehold improvements are changes that a tenant makes to a commercial rental property to customize the property to
the tenant’s needs.
4 The SBA can waive the $2 million maximum amount and provide a larger economic injury disaster loan (EIDL) if the
business is a major source of employment in the area and meets other requirements. See 15 U.S.C. §636d.
5 See the SBA’s regulations for Home Disaster Loans (13 C.F.R. §§123.100-123.108); Physical Disaster Business
Loans (13 C.F.R. §§123.200-204); and Economic Injury Disaster Loans (13 C.F.R. §123.300-123.303).
6 U.S. Congress, House Committee on Small Business, Small Business Administration Disaster Assistance Program,
(continued...)
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SBA Disaster Loan Credit Standards, Collateral Requirements, and Debt Collection
If the amount of an SBA disaster loan is above a certain threshold, an applicant must pledge
collateral such as real estate, personal property, or other items of ascertainable value to secure the
loan. The SBA uses collateral to minimize its risk by ensuring borrowers stay current on their
financial commitment. Collateral also helps offset loan default losses. The SBA obtains rights to a
borrower’s collateral with a security agreement that outlines the steps the SBA may take if the
borrower fails to repay the disaster loan. While the SBA will seek to secure any available
collateral, it will not reject an applicant solely because the applicant cannot provide collateral to
secure their loan.
The SBA typically secures its collateral interest by taking a lien against the applicant’s property.
The lien is recorded within the county or state in which the property is located.7 The SBA does
not require an applicant to pledge collateral if the loan amount (or aggregate loan amount) does
not exceed the unsecured thresholds (also known as unsecured loan limits). The SBA does not
require collateral for personal property disaster loans if the applicant does not own real estate
(this usually occurs when the applicant is a renter).8
Following a disaster loan default, the SBA is required under the Debt Collection Improvement
Act of 1996 (P.L. 104-134, as amended) to “maximize collections of delinquent debts owed to the
Government by ensuring quick action ... and the use of all appropriate collection tools.”9 For the
first several months following a missed payment, the SBA tries to get the borrower back to
making regular monthly payments. Beyond the first few months after a missed payment, the SBA
may begin debt collection efforts, including by liquidating collateral and referring the borrower to
the Department of the Treasury.10
This report first provides an overview of SBA disaster loan budgeting, credit standards, and loan
collateral requirements. As discussed later in this report, the amount of collateral required for a
disaster loan depends on (1) what type of declaration is issued for the incident, and (2) the total
amount of the disaster loan. This report then transitions to discussion of the SBA’s policy for debt
collection. For the purposes of this report, debt collection occurs when the borrower has become
delinquent in making payments on their SBA disaster loan.
Overview of SBA Disaster Loan Budgeting11
Budgeting for the SBA disaster loan program is governed by the Federal Credit Reform Act of
1990 (FCRA; Subtitle B of Title XIII of P.L. 101-508). Under FCRA, the SBA records the
expected lifetime cost of a disaster loan in the fiscal year that the loan is obligated. This amount,
also known as a credit subsidy, is the amount by which the federal government’s disbursements
2017, p. 1. More SBA disaster assistance was provided to small businesses than individuals and households in response
to the economic impact of the Coronavirus disease 2019 (COVID-19). For more information about SBA disaster
assistance for COVID-19, see CRS Report R46284, COVID-19 Relief Assistance to Small Businesses: Issues and
Policy Options, by Bruce R. Lindsay, Adam G. Levin, and R. Corinne Blackford.
7 The SBA sends a letter to the senior lien holder requesting advance notice of any foreclosure actions against the
borrower if the lien is located in a “non-notice” state.
8 Renters who own real estate are required to pledge the real estate as collateral for the loan.
9 31 U.S.C. §3701 note.
10 SBA, Disaster Loan Servicing and Liquidation, SOP 50 52 2, September 1, 2015, https://www.sba.gov/sites/default/
files/files/SOP_50_52_2_1.pdf (hereinafter SBA SOP 50 52 2).
11 This section is largely drawn from CRS Report R48558, SBA Disaster Loans Program Account: Overview and
Policy Options, by Bruce R. Lindsay and Anthony A. Cilluffo.
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SBA Disaster Loan Credit Standards, Collateral Requirements, and Debt Collection
exceed amounts received over the loan’s lifetime (on a net present value basis).12 This calculation
is largely based on assumptions about the difference between the federal government’s cost of
borrowing funds and the interest rate charged to disaster loan borrowers; the expected disaster
loan default rate; and how much of the defaulted balance the government will eventually
recover.13 At the estimated FY2026 subsidy rate of 18.75%, $1 of credit subsidy appropriations
can support $5.33 (or $1 divided by 0.1875) of disaster loan lending.
At times, Congress and the SBA have expressed interest in reducing the cost of a given amount of
lending in the disaster loan program. There are two broad options for doing so: (1) reducing the
interest rate subsidy, or (2) reducing the cost of defaults, net of recoveries.14 As shown in Table 1,
the component of the subsidy rate related to the interest rate has varied from FY2016 to FY2026,
from -3.88% to 15.67%, largely based on the external interest rate environment. For more about
interest rates in the disaster loan program, see CRS Report R46963, SBA Disaster Loan Interest
Rates: Overview and Policy Options, by Bruce R. Lindsay, Darryl E. Getter, and Anthony A.
Cilluffo.
Compared with the interest rate component, the cost of the defaults component of the subsidy rate
(net of recoveries) has varied less over the FY2016 to FY2026 period, ranging from 9.70% to
13.64%, as shown in Table 1. Assumptions about the lifetime default rate for the cohort (the
group of loans made during a fiscal year) and the post-default recovery rate determine this portion
of the subsidy rate. The program’s credit policy is the largest contributor to the default rate, while
collateral requirements and debt collection policies contribute to the post-default recovery rate.
The remainder of this report examines each of these three policy areas in detail.
Table 1. SBA Disaster Loan Credit Subsidy Rates and Loan Assumptions, FY2016-
FY2026
Numbers Are Percentages
Components of Subsidy Rate Loan Assumptions
Initial
Subsidy Defaults, Borrower Post-Default
Fiscal Rate Net of Interest All Interest Default Recovery
Year Estimate Recoveries Subsidy Other Rate Rate Rate
2026 18.75 10.57 10.16 -1.98 2.90 29.01 30.53
2025 22.22 9.70 15.67 -3.15 3.16 29.57 28.57
2024 20.55 10.34 12.67 -2.46 2.93 28.22 27.76
2023 12.91 11.57 1.66 -0.32 2.23 25.38 28.69
2022 8.96 12.61 -3.88 0.23 1.82 25.68 32.01
2021 8.92 11.22 0.72 -3.02 2.23 24.82 29.89
2020 13.62 10.35 7.58 -4.31 2.91 26.11 24.57
2019 12.29 12.74 2.56 -3.02 2.67 27.85 23.22
12 A net present value basis calculation adjusts for time differences in the value of money. Generally, due to factors
such as inflation and the possibility of earning interest on savings, a dollar is worth more today than it will be far into
the future.
13 A hypothetical loan with no default risk that charges an interest rate similar to the Treasury’s cost of borrowing
would have no subsidy cost. Disaster loans differ from this hypothetical by both (1) having an interest rate below the
Treasury’s cost of borrowing and (2) having a default rate above zero.
14 Alternatively, if Congress or the SBA wanted to expand access to the disaster loan program by making programmatic
changes, then this budgetary analysis could help guide an analysis of the potential budgetary costs of those changes.
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SBA Disaster Loan Credit Standards, Collateral Requirements, and Debt Collection
Components of Subsidy Rate Loan Assumptions
Initial
Subsidy Defaults, Borrower Post-Default
Fiscal Rate Net of Interest All Interest Default Recovery
Year Estimate Recoveries Subsidy Other Rate Rate Rate
2018 12.54 13.01 3.45 -3.91 2.73 28.51 21.59
2017 14.42 13.30 5.62 -4.49 2.81 29.65 19.81
2016 12.10 13.64 2.56 -4.11 2.90 27.88 18.13
Source: Table created by CRS using data from President’s Budget, Federal Credit Supplements, FY2017-FY2026,
available at https://www.govinfo.gov/app/collection/budget/. Each fiscal year is from the following fiscal year’s
budget document (for example, FY2016 data are from the FY2017 President’s Budget), except FY2026, which is
from the FY2026 President’s Budget.
Notes: SBA = Small Business Administration. The initial subsidy rate estimate is the sum of the three
components of subsidy rate. (Any differences are due to rounding.) The initial subsidy rate estimate is estimated
before the beginning of the fiscal year and does not incorporate any annual reestimates of the subsidy rate. The
initial subsidy rate is the rate used for determining the cost of loans made during the fiscal year, as well as
reinstatements of loans for each respective fiscal year after the end of the year. A reinstatement is a loan or part
of a loan initially approved in a prior fiscal year that was canceled but subsequently reapproved by the SBA.
SBA Disaster Loan Credit Policy
As a creditor, the SBA takes steps to be reasonably sure a loan will be repaid in full. To that end,
the SBA requires that the applicant have a “satisfactory credit history,” meaning that the
applicant’s credit history “generally shows payments to creditors as agreed unless otherwise
justified.”15 The SBA requires that its loan officers “consider the totality of circumstances
affecting the overall credit of the applicant when evaluating credit.”16 Applicants must also be
able to afford the additional debt burden of the potential loan to be approved.
Acceptable Credit History
For both individual and business applicants, the credit verification process for a disaster loan
generally starts when an SBA loan officer pulls a credit bureau report (such as a report from
Equifax, Experian, or TransUnion) for the applicant. An individual loan application will generally
use only the credit report of the individual applicant. A disaster loan of $200,000 or more to a
business also requires a commercial credit report (such as that from Dun & Bradstreet) prior to a
credit worthiness decision.17
For individual disaster loan applicants, there are three important credit score thresholds:
1. An applicant with a credit score below the SBA’s minimum acceptable score is
automatically declined. As of November 2023, the SBA uses a minimum
acceptable credit score of 570.18 According to the U.S. Government
Accountability Office (GAO), the SBA has reported that it “automatically
15 SBA, Disaster Assistance Program, SOP 50 30 9, May 31, 2018, p. 87, https://www.sba.gov/sites/default/files/2018-
06/SOP%2050%2030%209-FINAL.PDF (hereinafter SBA SOP 50 30 9).
16 SBA SOP 50 30 9, p. 87.
17 SBA SOP 50 30 9, p. 87.
18 U.S. Government Accountability Office (GAO), Disaster Loan Program: SBA Should Include Key Issues in Its
Review of How the Program Affects Underserved Communities, GAO-24-106682, November 30, 2023, p. 11,
https://www.gao.gov/products/gao-24-106682.
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SBA Disaster Loan Credit Standards, Collateral Requirements, and Debt Collection
declines applicants so they can seek assistance from [the Federal Emergency
Management Agency (FEMA)] faster.”19 An applicant whose application is
automatically rejected due to a low credit score may request that the SBA
reconsider their application through a manual review of the applicant’s credit
report.
2. An applicant with a credit score of 625 or greater with an income of $50,000 per
year or greater is eligible for expedited processing.20 Applicants meeting both
requirements are presumed to have repayment ability, allowing them to bypass
the fixed debt method for repayment analysis (explained further below).21
3. An applicant with a credit score of 700 or greater might be determined to have
credit available elsewhere and therefore may have to pay a higher interest rate on
their SBA disaster loan.22
The SBA is generally willing to consider the totality of circumstances behind adverse credit
events, particularly if the events were due to a disaster. Applicants can overcome a poor credit
history with reasonable explanations for why the events happened, such as if the events were due
to factors outside the applicant’s control or if the events were due to temporary factors.23
Applicants are less likely to be successful in doing so, however, if their credit history includes
delinquent federal obligations, such as federal student loans, SBA business loans, previous
disaster loans, federal contracts or grants, or other debts owed to the government. Applicants with
delinquent federal obligations who do not have a judgment lien against their property may be
eligible for a disaster loan, but the loan would require special processing. Applicants with
delinquent federal obligations who do have a judgment lien against their property are generally
ineligible, but an applicant might be eligible if the delinquency is due to the disaster itself or if the
applicant was current on a repayment plan before the disaster.24
Repayment Ability
Disaster loan applicants must also demonstrate an acceptable repayment ability to be approved
for a disaster loan. For the repayment ability analysis for SBA home disaster loans, there are three
key thresholds:
19 GAO, Disaster Loan Program. For more about FEMA assistance for individuals, see CRS In Focus IF11298, A Brief
Overview of FEMA’s Individual Assistance Program, by Elizabeth M. Webster.
20 GAO, Disaster Loan Program, p. 8.
21 SBA SOP 50 30 9, pp. 92-93.
22 Historically, the SBA’s determination of “credit elsewhere” had three parts; applicants were determined to have
reasonable credit available elsewhere if they passed at least two of the three tests. One of those tests is having a credit
score of 700 or greater. Another test is related to whether the applicant’s available cash flow is significantly greater
than the expected loan payment. The third test is whether the applicant’s pre-disaster adjusted net worth (assets minus
liabilities, with a $100,000 deduction) is more than four times greater than the uncompensated loss. The SBA amended
its regulations in July 2024 to remove the cash flow and net worth tests, allowing the agency to base the credit
elsewhere test entirely on the applicant’s credit score. The SBA has not updated the program SOPs for that change, so it
is not clear how the SBA implemented the change or if it is still using the 700 credit score threshold. See SBA,
“Disaster Assistance Loan Program Changes to Unsecured Loan Amounts and Credit Elsewhere Criteria,” 89 Federal
Register 59826, July 24, 2024, https://www.federalregister.gov/d/2024-16207.
23 SBA SOP 50 30 9, pp. 87-88.
24 SBA SOP 50 30 9, pp. 90-91.
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SBA Disaster Loan Credit Standards, Collateral Requirements, and Debt Collection
1. At the initial interview stage, the SBA summarily declines25 applications from
applicants with low income, as they are unlikely to have available cash flow to
repay a disaster loan.26 The SBA also summarily declines applicants with high
existing debt relative to their income.27 In both cases, a shorter time frame for
rejection decisions may allow the SBA to refer disaster survivors more quickly to
FEMA for potential grant assistance.28
2. For applicants who are not summarily declined for low income or high existing
debt, the SBA makes an initial estimate of repayment ability based on income as
reported on the loan application and total debts from the credit bureau report. If
this initial estimate of monthly income available for repayment is less than $50,
then the SBA automatically declines29 the application.30
3. If the applicant passes the previous two tests and is not eligible for expedited
processing (which requires a credit score of at least 625 and an income of at least
$50,000 per year), then the SBA assesses repayment ability using the SBA’s
“fixed debt method” (FDM).31 The FDM is based on the principle that there is a
maximum amount of debt that a person can reasonably afford and that providing
debt above that level entails unacceptable risk of default.32 The test compares
monthly gross income to existing debt and an estimate of basic living expenses to
determine whether the applicant has enough available cash flow to be able to
repay the disaster loan. For individual applicants, the income available for
additional debt payments (which helps determine the maximum loan amount and
the loan term) is generally monthly gross income (from all recurring sources),
less a 25% disregard33 for living expenses and less monthly payments for housing
(rent or mortgage and related expenses), auto loans, credit cards, and other
obligations.34
The process to determine repayment ability for business disaster loans is different. Business
disaster loans are not subject to the summary declination and automatic declination processes.
Instead, business applicants are more likely than individual applicants to undergo the full FDM
25 In the SBA disaster loan program, a summary decline is when an application is declined at the intake stage, before it
has been accepted for processing.
26 The low-income threshold is updated by the SBA annually. However, these announcements are not publicly
available. For 2017 income levels, see SBA SOP 50 30 9, Appendix 4, p. 165.
27 SBA SOP 50 30 9, p. 10.
28 For more about FEMA assistance for individuals, see CRS In Focus IF11298, A Brief Overview of FEMA’s
Individual Assistance Program, by Elizabeth M. Webster.
29 In the SBA disaster loan program, an automatic decline is when an application is declined by the automated checks
based on the credit bureau report. These tests occur after an application has been accepted for processing.
30 SBA SOP 50 30 9, p. 92. Individuals and households with low income may be eligible for FEMA grant assistance.
For more information about the application process for FEMA and SBA disaster assistance, see CRS Report R45238,
FEMA and SBA Disaster Assistance for Individuals and Households: Application Processes, Determinations, and
Appeals, by Bruce R. Lindsay and Elizabeth M. Webster.
31 As mentioned above, an applicant with a credit score of 625 or greater and income of $50,000 or greater is presumed
to have repayment ability and is eligible for expedited processing. Applicants who are eligible for expedited processing
do not undergo the fixed debt method (FDM) examination.
32 SBA SOP 50 30 9, p. 96.
33 In the SBA disaster loan program, the disregard is the portion of income that is considered to be unavailable to
service a disaster loan. For example, an applicant with $3,000 in monthly income would have $750 (25% of $3,000)
disregarded. The test would assume that the applicant has a total of $2,250 ($3,000 minus $750) available each month
for housing costs, existing debts, and the SBA disaster loan.
34 SBA SOP 50 30 9, pp. 96-100.
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SBA Disaster Loan Credit Standards, Collateral Requirements, and Debt Collection
analysis. For the FDM analysis, business applicants have a 40% disregard rate for their monthly
gross income (versus the 25% disregard rate for individual applicants).35
Loan Acceptance and Approval Data
A November 2023 GAO analysis examined the outcomes of SBA disaster loan applications
submitted by survivors of one of 13 hurricanes that occurred from FY2018 to FY2022.36 Table 2
summarizes the outcomes, which are also described below.
Of the 430,158 disaster loan applications submitted, over half (54%) were either summarily
declined or were declined after further processing. Around a quarter (about 111,380) of total
applicants were summarily declined for having low income, high existing debt, or both. Among
the applications that were accepted for processing but later declined, 63,399 applications (15% of
all received applications) were declined due to unsatisfactory credit history, and 39,287 (9% of all
received applications) were declined due to a lack of repayment ability. These two groups include
some overlap, since the SBA can identify multiple reasons for declining an application. The SBA
and GAO sources are not clear about how much the groups overlap. Depending on how much
overlap there was between these two groups, somewhere between 41% and 50% of total disaster
loan applications received following the 13 hurricanes were declined due to an unacceptable
credit history, a lack of repayment ability, or both.37
Table 2. Outcomes of SBA Disaster Loan Applications
Based on Applications from Survivors of 13 Hurricanes from FY2018 to FY2022
Number of Percent of
Outcome Applications Applications Received
Applications received 430,158 100%
Summarily declined for low income, high existing debt, or both ~111,380a 26%
Other applications not accepted for processing ~5,862a 1%
Applications accepted for processing 312,916 73%
... Total declined (automatic decline or after further review) 120,924 28%
... Unsatisfactory credit historyb 63,399c 15%
... Lack of repayment abilityb 39,287c 9%
... Ineligible business or propertyb 13,176c 3%
... Applications withdrawn 59,703 14%
... Applications in progress at the time of GAO’s study 911 <1%
... Applications approved 131,378 31%
35 SBA SOP 50 30 9, p. 96. This higher disregard rate means that a business will qualify for a smaller disaster loan, or
would require a longer loan term, than an individual with similar income and existing debts.
36 GAO, Disaster Loan Program.
37 These shares include applications summarily declined for low income, high existing debt, or both, as well as loans
declined during processing for unsatisfactory credit history or lack of repayment ability. Therefore, the number of loans
declined for these reasons can range from 174,779 (111,380 plus 63,399, which assumes all loans that were declined
during processing for lack of repayment ability were also declined for unsatisfactory credit history) to 214,066
(111,380 plus 63,399 plus 39,287, which assumes that none of the loans that were declined during processing for
unsatisfactory credit history were also declined for lack of repayment ability). The share of total applications thus
declined can range from 41% (174,779 divided by 430,158) to 50% (214,066 divided by 430,158).
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SBA Disaster Loan Credit Standards, Collateral Requirements, and Debt Collection
Source: Table created by CRS based on data in U.S. Government Accountability Office (GAO), Disaster Loan
Program: SBA Should Include Key Issues in Its Review of How the Program Affects Underserved Communities, GAO-24-
106682, November 30, 2023, pp. 21-24, https://www.gao.gov/products/gao-24-106682.
Notes: SBA = Small Business Administration. See the GAO report for additional details on the analysis.
a. These numbers are estimates. GAO states that “most applications (95 percent) that were not accepted [for
processing] were summarily declined” (see p. 22 of the GAO report).
b. These are only the top three reasons for an application’s decline; other reasons are not listed.
c. The numbers and percentages do not sum to the total and share of loans declined because the SBA can list
multiple reasons for declining an application; an application may therefore be counted under multiple
categories.
According to GAO’s analysis, the average credit score of applicants whose applications were
automatically declined for poor credit was 533, while the average credit score of applicants
whose applications were approved was 697.38
SBA Disaster Loan Collateral Policy
As a provider of disaster assistance, the SBA has decided that it should seek to “sympathetically
consider” the needs of the applicant.39 To that end, the SBA often requires less collateral for a
disaster loan than would be required for a similar loan in the private sector. Disaster loans (real
property and business physical) that fall below a certain threshold do not require any collateral.
For real property disaster loans (typically for homes) above the collateral threshold, the SBA
typically takes a lien on the applicant’s disaster-damaged house and considers the collateral
requirement to be met, regardless of the value of the collateral. Business applicants have stricter
collateral requirements. Businesses must pledge collateral with sufficient value to cover the full
amount of the loan. Additionally, the business’s principals must provide personal guarantees,
which may be secured by the principals’ personal assets. Congress and the SBA have regularly
made changes to these collateral policies over the history of the program, as described below in
“Collateral Policy History.”
The unsecured loan threshold has a role in determining the loan proceeds that the SBA can
provide to borrowers relatively quickly. Loan processing takes longer for borrowers who provide
collateral because the SBA must document the collateral and make required legal filings to
protect the SBA’s interest in the collateral. However, the SBA can advance amounts up to the
unsecured threshold to borrowers relatively quickly, after the loan has been approved and
accepted but before collateral filings are complete.40 Therefore, the unsecured loan threshold is
often included in policy discussions about the speed of the SBA’s response to disasters.
Secured and Unsecured Loans
Whether a loan is secured or unsecured depends upon whether the borrower pledged collateral and, if so, on the
value of the collateral in relation to the loan amount. An unsecured loan does not have collateral. A secured loan has
specific pledged collateral (such as a lien on the borrower’s house). A fully secured loan, such as what the SBA
requires for larger business disaster loans, has specific pledged collateral with a value at least equal to the value of
the loan. The unsecured loan threshold is used interchangeably with collateral threshold, and is the highest dollar value
disaster loan (based on loan and declaration type) that the SBA will make without requiring the borrower to
pledge collateral.
38 Due to data limitations, these credit score averages are based on disaster loan applications for 11 of the 13 hurricanes
considered. GAO, Disaster Loan Program, p. 23.
39 In program guidance, the SBA encourages disaster assistance employees to “balance between protection of the
Agency’s [financial] interest and sympathetic consideration of the applicant’s needs.” See SBA SOP 50 30 9, p. 96.
40 See SBA SOP 50 30 9, pp. 143-144.
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SBA Disaster Loan Credit Standards, Collateral Requirements, and Debt Collection
Collateral by Loan Type and Declaration Type
Collateral requirements for SBA disaster loans vary by the type of disaster declaration, disaster
loan type, and loan amount (see Table 3). There are two types of declarations relevant to the SBA
disaster loan program—presidential declarations and SBA Administrator declarations.41 While the
SBA does not require collateral for loans below the threshold amounts listed in Table 3, it will
accept collateral for smaller loans if the applicant voluntarily offers it (which the applicant may
choose to do for tax purposes).42
Table 3. SBA Disaster Loan Collateral Requirements
Loan Threshold Amounts for Collateral, by SBA Disaster Loan Type and Declaration
Physical Disaster Home and Business Loan Economic Injury Disaster Loan (EIDL)
SBA Administrator
Presidential Declaration Declaration Any Declaration
$50,000 $14,000 $50,000
Source: Table created by CRS based on analysis of 13 C.F.R. §123.11.
Note: SBA = Small Business Administration.
Collateral for SBA Home Disaster Loans
The SBA does not require collateral for a home disaster loan
• of $50,000 or less, if the incident is declared a major disaster pursuant to the
Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act;
P.L. 93-288, as amended; 42 U.S.C. §§5121 et seq.);43 or
• of $14,000 or less, if the incident is declared a disaster pursuant to the Small
Business Act (P.L. 83-163, as amended; 15 U.S.C. §§631 et seq.).44
As noted above, for most home disaster loans above the collateral threshold, the SBA will take
the disaster-damaged property as collateral for the loan. In these cases, the SBA will consider the
collateral requirement to be met, regardless of the owner’s available equity in the property.45
Additional collateral requirements may apply in other, limited cases, such as if the borrower uses
the loan proceeds to relocate or if the borrower offers other collateral in lieu of the primary
41 For information about the types of disaster declarations, see CRS Report R44412, SBA Disaster Loan Program:
Frequently Asked Questions, by Bruce R. Lindsay.
42 An SBA home disaster loan primarily secured by a lien on the applicant’s private residence may qualify for the
mortgage interest deduction. For more information, see Internal Revenue Service, Home Mortgage Interest Deduction,
Pub. 936, October 28, 2025, p. 6, https://www.irs.gov/forms-pubs/about-publication-936.
43 The Stafford Act authorizes the federal government’s primary sources of financial assistance to help state and local
governments, and individuals and households, recover and rebuild following an incident. For an overview of various
federal disaster assistance programs, see CRS Report R48712, Federal Disaster Assistance: An Overview of Programs,
coordinated by Maura Mullins.
44 The Small Business Act authorizes the SBA Disaster Loan Program. The SBA operates the Disaster Loan Program to
provide low-interest loans to homeowners, renters, businesses of all sizes, and nonprofit organizations to assist them
with recovering from declared disasters.
45 Available equity is the value of an asset minus any other claims against it. For example, if the owner of a house
worth $400,000 has a mortgage with a senior lien on the house with a balance of $250,000, and a home equity line of
credit with a junior lien of $50,000, then the available equity in the house is $100,000 ($400,000 minus $250,000 minus
$50,000).
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residence.46 The SBA does not require collateral for personal property loans, even above $50,000,
if the applicant does not own any real estate.47
Because of these standards, most SBA home disaster loans are provided on terms that are less
secured when compared with most private lenders’ terms. Private lenders require collateral for
many types of private loans without government guarantees. For example, a mortgage is secured
by the house and an auto loan by the vehicle. Private lenders might require higher standards for
collateral than the SBA, such as requiring that the loan be fully secured by collateral (meaning the
value of the collateral meets or exceeds the value of the loan). Taking collateral provides the
lender with some security in case of loan default, which reduces the net cost of default for the
lender. Private lenders sometimes offer some unsecured credit products—such as credit cards and
personal loans—that do not require collateral, but those often have significantly higher interest
rates than loans with collateral.
The SBA reported that, for the full portfolio of SBA disaster loans (both home disaster loans and
business disaster loans) from 2018 to 2023,48 41% of approved borrowers did not provide
collateral to fully secure the disaster loan; 13% did not have available equity to secure 20% of the
loan; and 7% did not have any available equity to secure any portion of the loan.49 Security rates
are likely lower for home disaster loans, since collateral requirements are higher for business
loans (as described below); therefore, these figures would likely be higher for home disaster loans
if analyzed separately.
Collateral for SBA Business Disaster Loans
The SBA requires more collateral for business disaster loans than for home disaster loans.
However, the SBA does not require collateral for a business disaster loan
• of $50,000 or less, if the loan is an EIDL (regardless of declaration type);
• of $50,000 or less, if the loan is for physical damage and the incident is declared
a major disaster pursuant to the Stafford Act; or
• of $14,000 or less, if the loan is for physical damage and the incident is declared
a disaster pursuant to the Small Business Act.
Generally, in cases where collateral is required, SBA loan officers are required to “determine
what collateral is available, and take that collateral which will best secure each loan.”50 Generally,
the SBA requires that business borrowers pledge collateral with available equity worth at least
100% of the loan amount. The SBA prefers real estate (especially non-damaged real estate) and
fixed assets, such as machinery and equipment, as collateral. Additionally, the SBA requires all
principals in the business (such as partners in a partnership or all owners with at least a 20% share
in a corporation) to provide personal guarantees of loan repayment. If the business can pledge
sufficient business assets to fully secure the loan, then the required personal guarantees can be
unsecured. If not, then the guarantors must make secured guarantees, in which they pledge
specific personal assets (such as their personal residence) as collateral for the business loan.51
46 SBA SOP 50 30 9, pp. 113-114.
47 SBA SOP 50 30 9, p. 113.
48 The SBA source for these data does not clarify whether these are fiscal years or calendar years.
49 SBA, “Disaster Assistance Loan Program Changes to Unsecured Loan Amounts and Credit Elsewhere Criteria,” 89
Federal Register 59826, July 24, 2024, https://www.federalregister.gov/d/2024-16207.
50 SBA SOP 50 30 9, p. 114.
51 SBA SOP 50 30 9, pp. 114-117.
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SBA Disaster Loan Credit Standards, Collateral Requirements, and Debt Collection
Collateral for Multiple Disaster Loans
In some instances, a borrower may have more than one SBA disaster loan (e.g., an individual real
property loan and an EIDL).52 The SBA aggregates loan amounts for the same type of loan
(treating home and business physical disaster loans as the same type) provided for the same
disaster when determining if the loans require collateral. If the total of all physical disaster loans
(home and business) is more than $50,000, then collateral is required for all loans, even if the
amount of each loan is less than $50,000. The SBA aggregates physical disaster loans separately
from EIDLs. For businesses, the SBA treats affiliated businesses as one borrower for this
aggregation. The SBA does not aggregate disaster loans with outstanding balances owed by the
same borrower from different disasters.53
For example, a borrower with a home disaster loan of $30,000 and a business physical disaster
loan of $30,000 would require collateral on both loans. A borrower with a business physical
disaster loan of $30,000 and an EIDL of $30,000 would not require collateral on either loan. A
borrower with a business physical disaster loan of $25,000 from a disaster several years ago and a
new home disaster loan of $30,000 from a disaster this year would not require collateral for either
loan. All of these examples assume the loans are pursuant to a presidentially declared disaster; the
examples would be different for SBA Administrator-declared disasters.
Collateral Policy History
Collateral requirements for the disaster loan program have changed over time as Congress and the
SBA have struck different balances between the need to protect the SBA’s interest in the loan and
“sympathetic consideration” of the disaster survivor’s situation. The stated justifications for
changes in collateral thresholds—when provided—have often mentioned adjusting the levels for
inflation. Table 4 lists some of the thresholds (explained further below) in effect at different times
in the program’s history; threshold amounts are listed in nominal dollars, with comparable values
in 2025 dollars using three methods of adjusting for price changes.54
Table 4. SBA Disaster Loan Collateral Thresholds
2025 Dollars
Nominal Median Home GDP PPI for Construction
Year and Loan Type Dollars Sales Pricea Deflator Materials
1978, all loansb $5,000 $37,032 $19,349 $21,319
1988, physical disaster loans $10,000 $36,859 $23,449 $29,216
2008, MREIDL $50,000 $90,100 $73,265 $86,008
52 Examples include a borrower who needs a physical disaster loan to repair their business and an EIDL for working
capital for the same disaster; a borrower who has two or more affiliate businesses that were damaged by the same
disaster; and a borrower who has a home and a business damaged by the same disaster.
53 SBA SOP 50 30 9, pp. 112-113, with updates by CRS for increased unsecured loan threshold amounts.
54 Several methods of inflation adjustment are economically reasonable in this context. The median home sales price
measures changes in the market value of the primary assets (primary residences) used as collateral for disaster loans to
individuals. Additionally, most of these loans to individuals are made to repair disaster damage to a primary residence.
The gross domestic product (GDP) deflator measures broad price changes in the economy, using prices paid for goods
and services by consumers, businesses, and the government. The Producer Price Index (PPI) for construction materials
measures changes in the cost of construction materials. Since most disaster loans (both individual and business) are to
repair physical damage, the cost of construction materials is one measure of how those costs have changed over time.
Other price adjustment measures beyond these three are also possible; these three were chosen for illustration.
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2025 Dollars
Nominal Median Home GDP PPI for Construction
Year and Loan Type Dollars Sales Pricea Deflator Materials
2008, physical disaster loans $14,000 $25,228 $20,514 $24,082
2014, all except MREIDL $25,000 $36,187 $33,441 $39,393
2024, loans for presidentially $50,000 $49,365 $51,414 $51,429
declared disasters
Source: Table created by CRS based on data from the Federal Reserve Bank of St. Louis, Federal Reserve
Economic Data, accessed April 29, 2026: “Median Sales Price of Houses Sold for the United States,”
https://fred.stlouisfed.org/series/MSPUS; “Gross Domestic Product: Implicit Price Deflator,”
https://fred.stlouisfed.org/series/GDPDEF; and “Producer Price Index by Commodity: Special Indexes:
Construction Materials,” https://fred.stlouisfed.org/series/WPUSI012011.
Notes: SBA = Small Business Administration; GDP = Gross Domestic Product; PPI = Producer Price Index;
MREIDL=Military Reservist Economic Injury Disaster Loan. All index data are based on annual averages. The
changes in the table are illustrative of long-term trends in the program and are not comprehensive of all changes.
See accompanying text for explanations of each change and the types of disaster loans to which they apply.
a. This value adjustment is calculated based on the ratio of the collateral threshold and the median sales price
for homes. According to the U.S. Census Bureau and U.S. Department of Housing and Urban Development
data cited by the Federal Reserve Bank of St. Louis, the median sales price of homes sold was $55,850 in
1978; $112,225 in 1988; $229,550 in 2008; $285,775 in 2014; $418,975 in 2024; and $413,650 in 2025. For
example, in 1978, the $5,000 collateral threshold was about 9% of the median home sale price of $55,850.
The equivalent amount in 2025 based on this ratio is $413,650 * 9% = $37,032 (calculated before rounding).
b. Senate Report 100-416 does not include a specific year, instead stating “late 1970s.” This table uses 1978
for illustration.
As enacted in the 1950s, the Small Business Act did not provide statutory references to a specific
dollar value threshold for requiring collateral,55 and the SBA administratively allowed smaller
loans to go unsecured. By the late 1970s, the administrative unsecured loan limit was $5,000.56
The Small Business Administration Reauthorization and Amendment Act of 1988 (P.L. 100-590)
provided the first statutory threshold for requiring collateral, with physical disaster loans (home
and business) of more than $10,000 requiring collateral.57 The conference report for that act
explained that “this increase simply recognizes inflation and will partially compensate for it and
also should streamline loan processing and reduce red tape.”58 The SBA kept the collateral
threshold for EIDLs at $5,000.
Several changes to disaster loan collateral policy were made in 2008. The Military Reservist and
Veteran Small Business Reauthorization and Opportunity Act of 2008 (P.L. 110-186) added a new
provision that required collateral for Military Reservist EIDLs of more than $50,000.59 Later that
same year, the Food, Conservation, and Energy Act of 2008 (P.L. 110-246; 2008 farm bill) was
enacted, which made two changes to collateral policies.60 First, it increased the statutory threshold
to require collateral for physical disaster loans of more than $14,000 (from $10,000). Second, it
55 The Small Business Act, P.L. 83-163 and P.L. 85-536.
56 U.S. Congress, Senate Committee on Small Business, Small Business Administration Reauthorization and
Amendment Act of 1988, report to accompany H.R. 4174, 100th Cong., 2nd sess., S.Rept. 100-416, July 7, 1988, p. 23.
57 P.L. 100-590, §122.
58 U.S. Congress, House of Representatives, SBA Reauthorization and Amendment Act of 1988: Conference Report,
report to accompany H.R. 4174, 100th Cong., 2nd sess., H.Rept. 100-1029, October 3, 1988, p. 38.
59 P.L. 110-186, §203.
60 P.L. 110-246, §12065.
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SBA Disaster Loan Credit Standards, Collateral Requirements, and Debt Collection
allowed the SBA to increase that threshold “as the Administrator determines appropriate in the
event of a major disaster.” The committee report for a related earlier bill61 again framed the
increase in terms of inflation: “[The unsecured loan] threshold is not indexed to inflation.... This
bill would raise the level to $14,000 to allow for homeowners and businesses to access additional
capital without the need for collateral.”62 The committee report did not include an explanation for
granting discretion to the SBA Administrator to increase the threshold for loans made pursuant to
a major disaster.63
Following Hurricane Sandy in late 2012, President Obama established the Hurricane Sandy
Rebuilding Task Force, comprised of the heads of 23 executive branch departments and
agencies.64 As part of the Task Force’s charge, it developed a “Rebuilding Strategy” that included
a recommendation to “increase SBA’s unsecured disaster loan limits and expedite the
disbursement of small dollar loans.”65 Pursuant to that recommendation, in April 2014, the SBA
increased the collateral threshold for physical disaster loans (home and business) made pursuant
to a major disaster to $25,000 (from $14,000) and increased the collateral threshold for EIDLs for
all disaster types (except Military Reservist EIDLs) to $25,000 (from $5,000). The collateral
threshold for SBA Administrator-declared disasters was still $14,000. In making the change, the
SBA pointed to the Task Force’s recommendation and noted that “with these increased limits,
more businesses, homeowners, and other potential victims that may be impacted by future
disasters will receive much-needed small dollar loans more quickly following a disaster”;66 these
unsecured loans can follow expedited processing and disbursement procedures since the SBA
does not need to process additional documentation for pledged collateral.67
In 2015, the Recovery Improvements for Small Entities (RISE) After Disaster Act of 2015 (P.L.
114-88) made two changes to SBA disaster loan collateral policies. First, the act included a
provision that clarified that the SBA shall not require a business owner to pledge their personal
residence as collateral for a physical business disaster loan or EIDL of $200,000 or less, provided
that the owner could substitute other personal assets of equal quality for the full amount of the
loan.
61 S. 163 (110th Congress), the Small Business Disaster Response and Loan Improvements Act of 2007.
62 U.S. Congress, Senate Committee on Small Business and Entrepreneurship, Small Business Disaster Response and
Loan Improvements Act of 2007, report to accompany S. 163, 110th Cong., 1st sess., S.Rept. 110-64, May 7, 2007, p. 4.
63 Although the committee report did not mention a rationale for the change, the context of the bill suggests a few
possibilities. First, the report mentions that the unsecured loan threshold is not indexed for inflation. Granting
discretion to the SBA Administrator to increase the threshold, at least for major disasters, could allow the SBA to
administratively address the effects of inflation. Second, the original legislation (S. 163) was part of a succession of
efforts (detailed in the introduction of S.Rept. 110-64) by the Senate Committee on Small Business and
Entrepreneurship to reform the SBA disaster loan program following the historically destructive hurricanes Katrina and
Rita in 2005. Specifically, the bill’s report states that “the SBA failed in its mission to respond quickly and effectively
to victims’ needs in the weeks and months following the hurricanes.” Granting authority to the SBA Administrator to
increase the collateral threshold could give the SBA increased flexibility to respond to disasters when there is a
heightened need to respond quickly, or in cases of exceptionally destructive disasters that leave even once-prosperous
survivors without any valuable assets for collateral. Finally, granting the authority only for major disasters may
recognize that the SBA responds to a variety of disasters and that disasters of differing severity may warrant different
credit policies.
64 Executive Order 13632 of December 7, 2012, “Establishing the Hurricane Sandy Rebuilding Task Force,” 77
Federal Register 74341, December 14, 2012, https://www.federalregister.gov/d/2012-30310.
65 See recommendation 42 on p. 25 of Hurricane Sandy Task Force, Hurricane Sandy Rebuilding Strategy: Progress
Update – Spring 2014, https://archives.hud.gov/news/2014/pr14-076-sandy-rebuilding-0614.pdf.
66 SBA, “Disaster Assistance Loan Program; Disaster Loan Credit and Collateral Requirements,” 79 Federal Register
22859, April 25, 2014, https://www.federalregister.gov/d/2014-09183.
67 SBA, “Disaster Assistance Loan Program.”
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Second, the act increased the statutory collateral threshold for physical disaster loans (home and
business) to $25,000 (from $14,000) for all disaster types, and the act allowed the SBA
Administrator discretion to administratively increase the threshold for all disaster types (not just
major disasters). The increased threshold and the SBA Administrator’s expanded discretion were
set to expire after three years, in 2018. However, they were both temporarily extended twice:
through 2019 (by P.L. 115-280) and through 2022 (by the Rebuilding Small Businesses After
Disasters Act, P.L. 116-70). Both temporary provisions expired on November 25, 2022.
The SBA made two administrative changes to collateral thresholds since the expiration of the
temporary changes provided by the RISE After Disaster Act of 2015. First, in June 2023, the SBA
amended its regulations to grant itself greater discretion regarding when to take collateral for
loans above the collateral threshold. Before the change, borrowers were required to provide
available collateral. After the change, borrowers are required to provide available collateral as
determined by the SBA. The rulemaking stated that “this increased flexibility will allow SBA to
tailor this collateral requirement to the disaster survivor’s circumstances. For example, requiring
liens on property with no liquidation value may increase the cost burden to the borrower without
providing meaningful liquidated recovery for SBA in the event of a default.”68
Second, in July 2024, the SBA exercised its statutory discretion to increase certain collateral
thresholds. At that time, the SBA set the collateral thresholds for physical disaster loans (home
and business) made pursuant to a major disaster and all EIDLs at $50,000 (for most loan types, up
from $25,000), while the threshold for physical disaster loans made pursuant to an SBA-declared
disaster is the statutory value of $14,000 (down from $25,000). The SBA stated that it expected
that the change would reduce the share of disaster loans that require collateral from 46% under
the previous thresholds to 31% under the new thresholds.69
SBA Disaster Loan Debt Collection Policy
Following a default, the SBA is required under the Debt Collection Improvement Act of 1996
(P.L. 104-134, as amended) to “maximize collections of delinquent debts owed to the
Government by ensuring quick action ... and the use of all appropriate collection tools.”70 The
SBA uses an escalating collection process that depends upon the length of time a disaster loan has
been in default. The collection process starts with a past due notice and payment reminder calls
after around one month of payment delinquency. Collection efforts then escalate over time to
include due process notices, acceleration of the total amount due,71 seizure and liquidation of
collateral, reporting to credit bureaus, and referrals to the Treasury for enhanced collection
efforts.72
Delinquency and Default
During the first 60 days following a missed payment, the SBA begins the debt collection process
by sending the borrower past due notices in the mail and making automated payment reminder
68 SBA, “Disaster Assistance Loan Program Changes to Maximum Loan Amounts and Miscellaneous Updates,” 88
Federal Register 39335, June 16, 2023, https://www.federalregister.gov/d/2023-12779.
69 SBA, “Disaster Assistance Loan Program Changes to Unsecured Loan Amounts and Credit Elsewhere Criteria,” 89
Federal Register 59826, July 24, 2024, https://www.federalregister.gov/d/2024-16207.
70 31 U.S.C. §3701 note.
71 Acceleration of the loan means that the full amount remaining on the loan is due immediately, regardless of the
previous repayment schedule.
72 SBA SOP 50 52 2.
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SBA Disaster Loan Credit Standards, Collateral Requirements, and Debt Collection
phone calls. The SBA’s initial goal following a missed loan payment is to return the loan to
regular servicing status (that is, to get the borrower back to making regular payments as agreed
upon). The SBA uses a variety of tools to do this, depending upon the borrower’s situation. These
include the following:
• A deferment, which can suspend monthly payments for a period of time in
response to a temporary challenge.73 For example, a borrower’s income might be
low for several months because a temporary injury prevents the borrower from
working. Loan payments can resume after the borrower recovers and returns to
work.
• Severe financial hardship relief, which can modify loan terms to assist
borrowers who have experienced significant adverse events since receiving the
SBA disaster loan.74 For instance, the SBA may grant permanent or temporary
changes to the loan terms, such as lower monthly payments or a lower interest
rate. In addition, this relief delays the SBA’s decision to move the loan into
liquidation and collection.
• A workout, which is an agreement between the SBA and the borrower to make
substantive changes to the loan that enable the borrower to repay as much of the
original loan as possible while avoiding the need for actions such as foreclosure,
liquidation of collateral, bankruptcy, and enhanced debt collection. Some of the
possible loan changes include forbearance, changing the monthly payment
amount, lowering the interest rate, or allowing the borrower to sell collateral to
pay down the loan.75 The workout process can start as late as the beginning of the
collateral liquidation process. A workout is often the last chance for the SBA and
the borrower to resolve the debt before debt collection and/or litigation.
Debt Collection and Charge-Off
Debt collection activity increases significantly when a loan is over 60 days past due, as shown in
Table 5. At that time, the SBA sends the borrower and loan guarantors a “60 day” due process
letter to inform them that the SBA intends, in an additional 60 days (that is, at 120 days
delinquent), to send the loan to the Treasury for enhanced debt collection. The borrower has until
the end of that 60-day period to pay the full amount of the loan, enter into a satisfactory
installment agreement to repay the loan, or prove that the borrower is not legally liable for the
debt (such as due to bankruptcy or fraud).76 At 75 days past due, the SBA sends a demand notice,
which formally accelerates the entire amount due on the loan and demands payment for the full
amount. Automated payment reminder phone calls also continue through this period. The
borrower has “reasonable time” following the 60-day due process notice to enter into an
acceptable workout plan for the loan.77 If the borrower and the SBA fail to reach an agreement,
then the SBA will begin to liquidate collateral.
73 SBA SOP 50 52 2, pp. 70-72.
74 SBA SOP 50 52 2, pp. 40-44.
75 SBA SOP 50 52 2, pp. 84-86.
76 For due process requirements, see 13 C.F.R. §140.3.
77 SBA SOP 50 52 2, p. 84.
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SBA Disaster Loan Credit Standards, Collateral Requirements, and Debt Collection
Table 5. Timeline of SBA Actions Following Disaster Loan Delinquency
Days After Delinquency SBA Actions
1-59 The SBA seeks to get the loan back to regular
repayment status through tools such as deferment, Throughout the
severe financial hardship relief, and workout plans. delinquency period
before charge-off and
60 The SBA sends the “60 day” due process letter referral to Treasury,
informing the borrower that the SBA intends to refer the SBA makes
the debt to Treasury for collection in an additional 60 automated payment
days. reminder phone calls
and mails past due
75 The SBA sends a demand notice, formally accelerating notices.
(demanding full payment of) the delinquent debt.
120+ Once the SBA has completed collateral liquidation, the loan is eligible to be
charged off (removed from the SBA’s books), transferred to Treasury’s Cross-
Servicing program and the Treasury Offset Program, and reported to credit
bureaus and the federal database of defaulted borrowers; for cancelled or
uncollectible debt, the SBA issues an IRS Form 1099-C (which may have tax
consequences for the borrower).
Source: Table created by CRS based on Small Business Administration (SBA), Disaster Loan Servicing and
Liquidation, SOP 50 52 2, September 1, 2015, https://www.sba.gov/sites/default/files/files/SOP_50_52_2_1.pdf, and
other SBA policies.
Notes: Dates following delinquency are approximate; specific actions may occur at different times depending
upon the facts and circumstances. See the accompanying text for additional information about each action.
The SBA takes a number of additional actions once loans are 120 days past due. After this time, if
the SBA has completed all debt collection actions for which expected recoveries exceed expected
costs and does not anticipate additional payments, debt collection, or recoveries on the loan, it
will charge off the remaining balance. Charge-off is an administrative accounting action by which
the SBA recognizes the loss of the unpaid loan amount, for purposes of its own financial
reporting. Charge-off is not loan forgiveness and it does not release the borrower or guarantors
from needing to repay the loan. Instead, charge-off formally moves the loan from liquidation to a
post-liquidation status that makes it eligible for additional collection tools.78
Following charge-off, the SBA may take several actions. For debts that have been canceled for
being uncollectible (such as due to an accepted offer in compromise79), the SBA issues an Internal
Revenue Service (IRS) Form 1099-C reporting the cancellation of debt; the canceled debt amount
may be taxable income to the borrower. The SBA reports the debt to private credit reporting
bureaus; having the debt on their credit record may make it harder for the borrower to obtain
credit (private or government) in the future. The SBA also reports the debt to the federal Credit
Alert Verification Reporting System (CAIVRS); having debt recorded in the CAIVRS generally
makes a borrower ineligible for future federal loans.80
78 SBA SOP 50 52 2, pp. 120-121.
79 An offer in compromise is an agreement between the SBA and the borrower to settle the debt for less than the full
amount owed. The SBA states that, “generally, an offer in compromise will be accepted if it reflects the [borrower’s]
true ability to pay, and will be rejected if the [borrower] can pay the loan in full via a lump sum payment or an
installment agreement, or if acceptance of the offer would harm the integrity of the SBA disaster loan program.” See
SBA SOP 50 52 2, p. 106.
80 For more about CAIVRS, see U.S. Department of Housing and Urban Development, “Credit Alert Verification
Reporting System (CAIVRS),” accessed March 25, 2026, https://www.hud.gov/stat/sfh/caivrs-system.
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SBA Disaster Loan Credit Standards, Collateral Requirements, and Debt Collection
If the remaining debt is still collectible, the SBA sends it to the Treasury’s Cross-Servicing
program and the Treasury Offset Program.81 The Treasury conducts enhanced debt collection
activities such as (as applicable) garnishing wages or offsetting federal payments to the borrower,
including federal contractor payments, Social Security benefits, federal income tax refunds, and
other payments. Borrowers remain subject to federal payment offset until the debt is repaid, the
debt becomes unenforceable (such as through bankruptcy, death, or a statute of limitations), or the
Treasury accepts an offer in compromise. In FY2024 (the most recent full fiscal year data
available), the SBA reported recovering $126.5 million on charged-off disaster loans, mostly
through Treasury efforts.82
Concluding Observations
The SBA disaster loan program expanded during the COVID-19 pandemic, largely due to the
issuance of nearly 4 million COVID EIDLs for a total of nearly $387 billion.83 Given this
portfolio growth and the SBA’s ongoing responsibilities in servicing these loans, the core
underwriting and debt collection policies in the program may be of increased interest.84 In the
disaster loan program, Congress and the SBA seek to balance a “sympathetic consideration” of
the needs of disaster survivors with the need to financially safeguard the program (and taxpayers)
from losses.85 Disaster loan program policies regarding credit standards, required collateral, and
debt collection all contribute to this balance at different points in the loan lifecycle. Credit
standards determine which borrowers can get a disaster loan and prevent lending to applicants
who do not have a realistic chance of repaying the loan. Collateral policy determines the level of
security of the loan if the borrower were to default on payments. Collection policy comes into
play after default and liquidation of collateral; collection policy represents the federal
government’s last chance to be repaid, by enforcing debt collection from other sources, including
wages, tax refunds, and Social Security benefits.
81 For more about the Treasury’s debt collection programs, see CRS Report RL34660, Federal Government Debt
Collection: An Overview of the Treasury Offset and Federal Payment Levy Programs, by Gary Guenther.
82
SBA, “Small Business Administration Loan Program Performance,” data as of June 30, 2025, https://www.sba.gov/
document/report-small-business-administration-loan-program-performance.
83 The unpaid principal balance (the outstanding loan amount without interest) for the SBA disaster loan program
increased from $9.6 billion at the end of FY2019 to $367.0 billion at the end of FY2022. SBA, “Small Business
Administration Loan Program Performance.”
84 For example, the SBA Office of Inspector General issued an audit report on the SBA’s collection efforts on
delinquent COVID EIDLs in August 2025. SBA Office of Inspector General, “SBA’s Collection Efforts on Delinquent
COVID-19 EIDLs,” Report 25-23, August 12, 2025, https://www.sba.gov/document/report-25-23-sbas-collection-
efforts-delinquent-covid-19-eidls.
85 The SBA SOPs for the disaster loan program remind employees of this need for balance several times. For example,
see SOP 50 30 9, p. 96, and SOP 50 52 2, pp. 6, 7, 43, 46, and 49.
Congressional Research Service 17
SBA Disaster Loan Credit Standards, Collateral Requirements, and Debt Collection
Author Information
Anthony A. Cilluffo Maria Kreiser
Analyst in Public Finance Senior Research Librarian
Bruce R. Lindsay
Specialist in American National Government
Acknowledgments
The authors gratefully acknowledge the contributions of the following individuals at CRS: Grant Driessen,
Acting Section Research Manager; Krista Faries, Editor; Julie Lawhorn, Analyst in Economic
Development Policy; Adam Levin, Analyst in Economic Development Policy; Brent Mast, Acting
Coordinator of Research Planning; Maura Mullins, Acting Section Head; and Lauren Stienstra, Section
Research Manager.
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
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under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
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