SBA slammed for Katrina delays

Forget FEMA -- the real roadblock to hurricane recovery is the Small Business Administration, some Gulf Coast business leaders say.

Regional business leaders gathering in Washington this week for a strategy session blasted the SBA for moving slowly to distribute disaster-recovery loans and for being inflexible, uncreative, and bureaucratic. Small businesses devastated by the storm are in danger of going bankrupt if they cannot get quick access to loans to keep them afloat until their customers return, participants said.

The numbers are striking. SBA spokeswoman Anne Marie Frawley said that as of November 29, the agency had received 18,080 applications for loans to offset physical damage caused by Hurricane Katrina in Louisiana alone. In response, the SBA had so far approved 472 of the applications and had distributed only 84 loans, totaling $724,000.

The agency had also received 1,890 applications for "Economic Injury Disaster Loans," and it had approved 436 of the applications and disbursed 102 loans, for a total of $1.4 million.

Frawley said the small numbers are not the result of SBA foot-dragging. "There is a lot of criticism, and a lot of it is misinformation," she said. The agency's critics "have not done their homework."

Frawley explained that the Federal Emergency Management Agency refers homeowners and small businesses to the SBA for loans first, and then makes grants to applicants whom the SBA has turned down. The bulk of the people who apply for an SBA loan "are not intending to get a loan," Frawley argues. They are simply going through the steps required before they can apply to FEMA.

In addition, the SBA loan process follows normal loan requirements: Borrowers have to prove some ability to repay the money, and physical-damage loans require estimates for the repair costs, plus a physical inspection by an SBA assessor. Once approved, borrowers do not simply get a check. They have to request funds, generally in installments, to pay for portions of the repair project. That explains why the disbursement numbers are smaller than the approvals.

The SBA has established a "Gulf Opportunity Pilot Loan Program" -- called "GO Loans" -- that essentially offers a federal guarantee for disaster loans issued by private lending institutions. SBA Administrator Hector Barreto announced the program on November 8, saying it would be effective immediately and would "unleash the liquidity and expertise of commercial banks" in funding the Gulf Coast recovery effort. But as of November 29, the agency could provide no data to show if any GO loans have yet been granted.

Walter Isaacson, co-chairman of the new Louisiana Recovery Authority, said that the SBA has to eliminate the bureaucratic hurdles and move more quickly to get money to Gulf Coast businesses. "SBA has not been very good, has not been very effective or creative," he said. "It is not treating this as an emergency situation."

While the SBA is hiring thousands of new people in its disaster office, Isaacson said, it takes time to train those people, and time to implement new programs like the GO Loans -- time that small businesses do not have. "You can't expect someone who is hanging on by their fingernails to figure out a new program."

Senate Small Business Committee Chairwoman Olympia Snowe, R-Maine, has proposed legislation to increase the SBA's loan authority and provide specific aid to businesses and nonprofits affected by Hurricanes Katrina and Rita. The administration has opposed the bill.