A provision tucked into this year's federal farm bill has given the banking industry a legislative victory sought ever since the aftermath of Hurricane Katrina and Hurricane Rita three years ago.
The provision gives lenders the ability to make loans to individuals and businesses through the Small Business Administration's disaster lending program. It took effect last month when Congress overrode the president's veto of the farm bill.
Previously only the SBA itself could make the disaster loans. The SBA had typically hired temporary workers to help underwrite and process loans, but the 2005 hurricane season exposed the shortcomings of that model — application volume overwhelmed the agency's processing capacity. Months after the two major hurricanes hit the Gulf Coast, the SBA had processed only a few thousand of the more than 200,000 loan applications received.
Under the revised program, qualified lenders can make disaster loans to small businesses, and preferred lenders can make the loans to both individuals and businesses. The maximum loan size is $2 million, and the SBA guarantees 85% of the amount.
"I'm tickled," said Ed Francis, the senior commercial banking officer for the $6 billion-asset Hancock Holding Co. in Gulfport, Miss. "This is a very good fix for the disaster program."
Calls to the SBA seeking comment for this story were not returned. In a news release Monday, the SBA said it has hired retired Rear Admiral Steven G. Smith to head its newly created Executive Office of Disaster Strategic Planning.
Mr. Francis said the changes to the program would benefit all those involved: The government will not have to lend its own money or hire people to process the loans; borrowers will have shorter waiting times; and banks will be able to make more loans because of the government guaranty, so that communities can recover faster.
"This would have been a very, very strong program following Rita and Katrina," Mr. Francis said. "It would have helped tremendously, especially in those first 90 or 120 days when there is so much uncertainty."
Guy Williams, the president and chief executive officer of the $850 million-asset Gulf Coast Bank and Trust Co. in New Orleans, said he is pleased bankers can be more involved in helping the community in a crisis.
Had there been access to a similar program in 2005 it likely would have saved a lot of the businesses that left town, Mr. Williams said. For example, a tailor who did specialty custom shirts in the city moved to Jackson, Miss., because he could not get the financial support he needed to remain in New Orleans.
"He's fine, but we're not. We lost that business," Mr. Williams said. "That is the sort of business that might have stayed if we were able to help him out right away."
Mr. Williams would like to see even more done to get financial support to consumers, especially the poorest, faster. One suggestion he has is to use his state's welfare debit card system, called Louisiana Purchase Card, for that purpose.
"It would make so much sense to have those card numbers and be able to load cash on them to help those folks," he said. "The poorest citizens have already been screened. To be able to quickly help them out would be a nice thing to do, and the efficiencies would probably make it a cost-free change."
