It has been seven months since the last of three big hurricanes hit the U.S., but a pilot program designed to give banks a chance to make federally backed disaster loans has yet to take its first application.

What’s more, the pilot was established only last fall even though Congress directed the creation of a program just like it a decade ago.

What happened?

The Small Business Administration introduced its Express Bridge Loan program in mid-October, shortly after hurricanes Harvey, Irma and Maria did serious damage in Texas, Florida, Puerto Rico and elsewhere. One of the key ideas behind the program was to ease the burden on the federal government immediately after a disaster when it is still getting its relief operations in place; the SBA has traditionally made such loans, not banks.

The program gives lenders that already participate in SBA Express the authority to make small disaster-relief loans to their small-business customers after a presidentially designated disaster. The maximum loan size is $25,000, and credits would carry a 50% SBA guarantee.

The SBA wants to see the pilot succeed, but by the time it was rolled out, businesses’ need for small-dollar emergency loans had passed, an agency spokeswoman said in an email this week in response to questions from American Banker.

SBA's direct disaster-relief loans from 2014 through April 10, 2018


As the “express” in its name suggests, the program is intended to aid small businesses in the days and weeks immediately after a disaster strikes. The last of the three hurricanes, Maria, made landfall in Puerto Rico on Sept. 20.

“Lenders didn’t have enough time to make these loans available to businesses recovering in the aftermath of Hurricanes Harvey, Irma and Maria,” the SBA spokeswoman wrote. “Businesses had already been approved for SBA disaster loans or were using insurance proceeds to rebuild.”

Of the $6 billion in disaster loans SBA has made thus far in fiscal 2018, $942.3 million has gone to small businesses. Homeowners received $5.1 billion.

Marketing is another issue, according to James Ballentine, executive vice president of congressional relations and public affairs at the American Bankers Association.

“SBA programs historically have gotten off to a slow start,” Ballentine said. “We’ve not heard anything to say the industry would never do this. I just don’t think a lot of [banks] know about” the Express Bridge Loan program.

Wells Fargo, the nation’s largest SBA lender, is not an Express Bridge Loan participant, but a spokesman said in email this week that the $2 trillion-asset company has not ruled joining at some point.

“We support the SBA’s efforts in this area, and continue to evaluate the program,” wrote Jim Seitz, vice president and communications manager for Wells' deposit products group and small-business lending. Wells waives and refunds fees, offers payment relief and makes no negative reports to credit bureaus for small-business clients hit by disasters, Seitz added.

Unlike its regular 7(a) and 504 lending programs, which guarantee loans made by banks and other lenders, SBA has historically made disaster loans directly to borrowers. It maintains a relatively small permanent disaster-lending staff (1,311 full-time employees at the end of fiscal 2017) and ramps up with temporary workers once a disaster hits. But after several previous disasters, especially Hurricane Katrina in 2005, both bankers and borrowers complained recovery efforts were hampered by a sluggish agency response.

To remedy the situation, Congress enacted the Small Business Disaster Response and Loan Improvements Act of 2008, which authorized the SBA to guarantee disaster credits made by private lenders.

That law was supposed to allow lenders to make disaster loans as large as $2 million. The SBA, however, made little progress implementing the regulations necessary to convert Congress’ intent into a functioning program.

The SBA’s track record at providing timely disaster relief is mixed, said Veronique de Rugy, a senior research fellow at George Mason University’s Mercatus Center in Fairfax, Va. De Rugy has written extensively on disaster-relief lending and has urged the SBA and other agencies to invite a greater private-sector role, but bankers have been hesitant to plunge into disaster-relief lending, she said.

“The reluctance of banks to lend money [in disaster situations] is not a market failure,” de Rugy said. “It’s an expression of the fact that its high-risk, and it remains high-risk even with a 50% guarantee.”

Ballentine echoed the point in his comments.

“Disaster lending is done when there is a lot of chaos,” he said.

Nevertheless, SBA officials say the Express Bridge Loan program still has a future.

“Several lenders have been trained and are prepared to make the program available to businesses the next time a presidential disaster declaration is made,” the SBA spokeswoman said.

Ballentine, too, is hopeful the program gets a chance to prove its mettle.

“It’s a great idea,” he said. “It just hasn’t gained any traction.”