SBA official opposes proposed disaster lending reforms

A Small Business Administration official on Thursday expressed strong opposition to elements of a House bill that would require the agency to develop a comprehensive disaster response plan and let some banks make disaster loans on its behalf.

Herb Mitchell, associate administrator for SBA's Office of Disaster Assistance, testified against virtually every provision on lending in a bill (H.R. 1361) introduced Tuesday by House Small Business Committee Chairwoman Nydia Velazquez, D-N.Y.

Mitchell argued that provisions in the bill, which mirrors similar legislation introduced in the Senate last month, would needlessly increase agency costs.

Lawmakers developed the legislation in response to charges by victims of hurricanes Katrina and Rita that SBA has been disorganized in its disaster response, slow to process emergency loans and unable to handle the scope of local business needs.

The House bill would require SBA to develop a disaster plan including solutions to staffing and logistical problems encountered during the Gulf Coast hurricane responses. SBA also would need to undertake yearly disaster simulation exercises that would "stress-test" vital systems.

The lending reform provisions would require the agency to allow pre-qualified lenders such as local banks to originate, process and approve disaster loans for a small fee. Lending organizations have argued that they can process loans faster than the government, and that local institutions have better knowledge on which to base lending decisions.

The bill also would give SBA the authority to make immediate, low-value loans to bridge the time until normal disaster loans could be secured; double the maximum size of some business loans from $1.5 million to $3 million; extend disaster lending to nonprofit groups; and develop a grant program for business owners who do not qualify for the main disaster loan program but are seeking to re-establish their firms.

At a Thursday hearing on the legislation, representatives from the National Black Chamber of Commerce and the U.S. Women's Chamber of Commerce, two groups active on small business issues, strongly supported the legislation.

James Lee Witt, director of the Federal Emergency Management Agency during the Clinton administration, also testified in favor of the measure. "The bill is what is needed to restore and improve the SBA disaster programs that are so critical to a community's recovery … and resiliency to future disasters," he told the committee.

But Mitchell raised numerous objections.

He acknowledged that the private sector has a role is helping SBA process disaster loans, but said an administration proposal to that end had received no interest from the financial community. He said a provision requiring the agency's administrator to authorize private participation in SBA lending whenever processing times exceed 29 days "would create problems for borrowers." He advocated giving the administrator discretion on when to use that authority.

He also argued against the grant program, saying it would duplicate other programs. As an example, he said Louisiana has implemented a similar program under the Housing and Urban Development Department's Community Development Block Grant program.

Mitchell said provisions to increase the flexibility of lending and payback periods would increase loan subsidy costs for taxpayers.

A committee spokeswoman said a markup of the bill is scheduled for next Thursday.