crs_reports: R46963

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

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R46963 SBA Disaster Loan Interest Rates: Overview and Policy Options 2026-03-02T05:00:00Z 2026-03-05T16:52:55Z Active Reports Bruce R. Lindsay, Darryl E. Getter, Anthony A. Cilluffo Federal Disasters & Assistance The Small Business Administration (SBA) is authorized to provide low-interest, long-term disaster loans, either on a direct basis or in partnership with private lenders, to eligible individuals, businesses, and nonprofit organizations to help them repair, rebuild, and recover from uninsured, underinsured, or otherwise uncompensated economic losses after a declared disaster. The SBA has relied exclusively on direct disaster loans since the early 1980s. In designing the disaster loan program, setting the interest rates charged on SBA disaster loans involves weighing competing policy tradeoffs. Lower interest rates reduce the cost of borrowing for disaster survivors, but increase the cost for SBA (and ultimately taxpayers). Higher interest rates reduce the cost to SBA for providing assistance—allowing it to assist more disaster survivors for a given amount of program appropriations—but increase the costs for participating survivors and risk making the program too expensive for some potential participants. Over time, interest rate policies for the disaster loan program have changed as different Congresses and SBA leaders have weighed these competing policy priorities differently. Congress provides appropriations for SBA disaster loan administrative expenses and disaster loan credit subsidies (the amount necessary to cover the program’s non-administrative expenses). As a direct lending program, the SBA deposits disaster loan payments, including interest, into the SBA Disaster Loan Financing Account. These payments are used to repay the Department of the Treasury (Treasury) for the funds that SBA borrows from Treasury to make disaster loans. The SBA’s disaster loan credit subsidy rate (the net present value of cash flows to and from the program, including loan payments, prepayments, interest subsidies, defaults, and recoveries) determines the amount of appropriations necessary to cover the program’s non-administrative expenses. The loan credit subsidy rate is the program’s non-administrative cost divided by the amount disbursed, which is expressed as a percentage of the amount disbursed. For example, in FY2026, the SBA disaster loan program’s loan credit subsidy rate was 18.75%. This means that for each $1 appropriated for SBA disaster loan credit subsidies the SBA can provide about $5.33 in disaster loans. The SBA disaster loan program’s loan credit subsidy rate tends to be higher than other SBA loan programs because (1) its default rate tends to be higher than other SBA loan programs, (2) unlike most other SBA loan programs, the SBA is not authorized to charge disaster loan borrowers fees to help pay for expenses, and (3) disaster loan interest rates are determined by statutory formulas that underprice the risk associated with these loans. As a result, Congress provides appropriations for SBA disaster loan credit subsidies that otherwise could have been provided, at least in part, by borrower fees and higher interest rates. The SBA’s disaster loan interest rate formulas provide distinct limits for borrowers unable to secure credit elsewhere and for borrowers able to secure credit elsewhere. In recent years, some Members of Congress have argued that disaster loan interest rates should be lowered, or eliminated altogether, to provide greater relief for disaster victims. Some have also questioned whether SBA has the discretionary authority to lower disaster loan interest rates without legislative action. Others worry about the revenue that would be lost by doing so, and that additional appropriations may have to be provided to keep the program whole. Some Members of Congress are reluctant to provide that additional funding, given the size of the federal government’s debt and annual deficits. This report opens with an overview of the SBA Disaster Loan Program’s financing, followed by the history of SBA disaster loan interest rate policy and the statutory formulas that determine these rates. It also provides a more general overview of the SBA Disaster Loan Program and summarizes congressional debates over the extent to which the cost of these loans should be borne by borrowers or taxpayers. This report concludes with an assessment of various legislative options currently under consideration and the extent to which the SBA can administratively adjust disaster loan interest rates. https://www.congress.gov/crs_external_products/R/PDF/R46963/R46963.7.pdf https://www.congress.gov/crs_external_products/R/HTML/R46963.html

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