Under its disaster loan program, the Small Business Administration (SBA) does not require collateral for loans of $25,000 or less. For home or business loans provided in response to certain disasters, that threshold will revert to $14,000 on November 25, 2019. H.R. 277 would make the $25,000 threshold permanent.
Using information from the SBA, CBO expects that implementing H.R. 277 could slightly increase the volume of loans made under the program in each year after enactment. However, under current SBA regulations, the agency typically does not decline an application if the borrower lacks the specified collateral. CBO therefore estimates that enacting H.R. 277 would have an insignificant effect on the estimated subsidy cost of disaster loans. Such spending would be subject to the availability of appropriated funds because the disaster loan program is considered a discretionary credit program under the Federal Credit Reform Act of 1990. In 2019, the Congress provided a subsidy appropriation of $10 million for the disaster loan program.
On May 1, 2019, CBO transmitted a cost estimate for S. 862, the Rebuilding Small Businesses After Disasters Act, as reported by the Senate Committee on Small Business and Entrepreneurship on April 3, 2019. The two bills are similar and CBO’s estimates of the budgetary effects are the same.
The subsidy cost is the estimated long-term cost to the government, calculated on a net-present-value basis. Present value is a single number that expresses a flow of current and future income (or payments) in terms of an equivalent lump sum received (or paid) at a specific time. The value depends on the rate of interest (called the discount rate) used to translate future cash flows into current dollars.