NEW YORK (TheStreet) -- Small businesses applying for federal disaster loans after Superstorm Sandy smashed into the East Coast in 2012 had to wait more than three months, on average, to get their money.

It was far longer than many could afford.

The lower interest rates may not matter that much. Only about 42% of the applicants seeking such loans after Sandy were approved, according to a Government Accountability Office report requested by Velazquez and published in October.

"It's not just an issue of speed, it's the issue of an awful lot of businesses not getting approved," Palmer said.

SOURCE: House Committee on Small Business report

Representatives of Lending Club and OnDeck didn't return phone calls requesting comment for this article. 

While Lending Club is just beginning in small business lending, OnDeck has demonstrated that its technology-driven platform lets small businesses apply for a loan online at any time, receive a decision in as little as 15 minutes, and then have the loan funded the same day, Palmer said in his report.

The world's largest online peer-to-peer exchange connecting borrowers with lenders, Lending Club has a market value of $6.8 billion. The San Francisco-based company began offering small business loans to qualified investors in 2014, in amounts from $15,000 to $100,000, and doesn't make significant investments using its own balance sheet.

OnDeck, with a market value of just over $1 billion, uses algorithms to assess the creditworthiness of borrowers and often does lend against assets on its balance sheet, frequently to small businesses. It has also paid attention to disaster lending.

In a study released in March, the lender found that 77% of small businesses surveyed were hurt by severe winter weather in the Northeast, Midwest and Southeast. Almost 70% considered borrowing to help bridge the gap.


Offering disaster-recovery loans might help New York-based OnDeck and Lending Club win Congressional support for the online small business lending industry, much like the United Kingdom has provided, while lessening the likelihood of a regulatory crackdown, Palmer said in the report.

The Small Business Administration, or SBA, has tried to team with private lenders in the past, to no avail. One program entitled Immediate Disaster Assistance Program, or IDAP, was enacted in 2008, largely in response to bitter public criticism of the Federal Emergency Management Agency's assistance in the recovery from Hurricane Katrina, which struck New Orleans in 2005.

The program was designed to offer government-guaranteed loans of up to $25,000 from private-sector lenders to disaster victims within a 36-hour application approval window, according to the GAO report, entitled "Additional Steps Needed to Help Ensure More Timely Disaster Assistance."

The loans would have carried a minimum 10-year repayment period, which discouraged lenders who wanted to be repaid more quickly, according to the report. They preferred a term of five to seven years.

According to the Small Business Administration, if the program -- which was designed to connect private lenders in a collaborative effort to federal responders -- was better established, the delays and disappointments after Hurricane Sandy would have been averted.

"For Superstorm Sandy, the average business disaster loan amount is $107,000 and takes 46 days to be approved," according to a 2013 agency report. Had the private-sector loan program been in place when Sandy made landfall, it "could have helped some businesses that failed stay in business, supported job retention, and, ultimately, hastened the recovery in affected communities."

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