Gulf Coast bankers and at least two prominent lawmakers want Congress to give the Small Business Administration billions of dollars of special funding authority it could use to guarantee long-term, low-cost bank loans in the Katrina-ravaged region.
Conceptually, any loan fund created to aid the recovery from Hurricane Katrina would be modeled after the now-defunct Supplemental Terrorist Activity Relief program, which Congress authorized after the 9/11 terrorist attacks.
The SBA says it guaranteed about $3.6 billion of loans under Star, which got a bit of a black eye last week when the Associated Press reported that much of the money had been lent to companies hundreds of miles from the World Trade Center or the Pentagon. The SBA has strongly denied that it mishandled any money meant for disaster relief.
A spokesman for Sen. Olympia Snowe, R-Maine, the chairman of the Senate Committee on Small Business and Entrepreneurship, said she plans to investigate how Star funds were doled out. But that has not stopped Sen. John F. Kerry from proposing a similar fund to benefit businesses hurt by Katrina.
A spokesman said the Massachusetts Democrat and Sen. Mary Landrieu, D-La., would introduce an amendment to the SBA's fiscal 2006 budget this week that would create a special fund to guarantee bank loans to Katrina victims.
In a news release Monday, Sen. Kerry said: "Right now, we need to make up for lost time and help any way we can, and that means targeting the fastest relief possible. Every small business we can help will help a hardworking family start to put the pieces of their lives back together."
The Senate could vote this week on the SBA budget, which is included in the appropriation bill for the departments of Commerce, Justice, and State.
Observers expect the measure to receive broad bipartisan support in both chambers. The House passed its version of the SBA budget this summer, so it does not include any disaster-relief programs. However, Rich Carter, a spokesman for Rep. Donald Manzullo, the Illinois Republican who chairs the House Small Business Committee, said Rep. Manzullo and other members are eager to provide help to Katrina victims. He added that they have been working with senators to craft a measure that is broadly acceptable.
Sen. Kerry is the ranking minority member of the Small Business and Entrepreneurship Committee. The amendment that he and Sen. Landrieu have in mind would supplement the disaster-relief loans that the SBA and the Federal Emergency Management Agency are already making directly to people and businesses in the Gulf Coast region, Sen. Kerry's spokesman said.
Michael Lampton, an official with the SBA's disaster-relief unit, said the agency has already begun hiring loan officers and is placing them in the network of disaster relief centers being set up by FEMA. "We're scrambling to hire qualified folks," Mr. Lampton said Monday.
Edward Francis, the chief lending officer for the $4.8 billion-asset Hancock Holding Co. in Gulfport, Miss., said Monday that banks in the region would need an assist from the government to meet an expected surge in loan demand.
"The banks in the region are willing, and if the government would step up and give us some backing it would be a real shot in the arm," he said.
Banking trade groups are also lobbying Congress for a Star-style supplemental lending program. Last week the Independent Community Bankers of America called for $10 billion in SBA disaster-loan funding authority.
Paul Merski, the group's chief economist, said SBA loans, which have longer terms than conventional bank loans, would be critical in helping hard-hit businesses recover. The average length of a 7(a) loan is about 14 years, more than triple the average for conventional business loans. "Cash flow is critical to keep these small businesses running," Mr. Merski said.
Any program authorized to aid Katrina victims would almost certainly be structured as an extension of the SBA's flagship 7(a) lending program. Banks would underwrite and fund the loans, which would be guaranteed by the agency.
Under Sen. Kerry's amendment both borrowers and lenders would pay lower fees on the loans - savings that could be passed on to borrowers. In the Star program, most of the loans carried below-market rates, some as low as 4%.
Lawmakers say they would insist on restrictions designed to ensure that any disaster-relief loan fund is used only for individuals and businesses directly hurt by the hurricane. One such restriction would require the SBA to document how borrowers were adversely impacted.
Under the Star program, Congress authorized the SBA to make $4.5 billion of special, reduced-fee, 7(a) loans to businesses affected by the 9/11 attacks. The Associated Press story claimed that the agency and banks interpreted the eligibility regulations so loosely that businesses far removed from the attacks received loans. Among the recipients: a businessman in Reading, Pa., who used his loan to buy three Dunkin Donut shops; and another in Cheyenne, Wyo., who used the money he received to start an air-quality testing firm.
The Associated Press said most of the banks involved did not inform their borrowers that they were receiving money earmarked for disaster relief.
In a press release Friday, SBA Administrator Hector V. Barreto strongly defended his agency's handling of the Star funding, and said the news account was "rife with errors."
A report issued Monday by the General Accounting Office said the SBA "played a key role in assisting small businesses affected by the September 11, 2001, terrorist attacks ... and acted appropriately in delivering the loans to small businesses."
