A growing number of bankers want to partner with the Small Business Administration on disaster relief as rebuilding estimates tied to Hurricane Harvey keep mounting and as Floridians and Georgians assess damage from Irma.
The SBA, however, is giving little indication that it would welcome the help.
All of the $450 million in funds the SBA should receive from a recently passed disaster recovery package are earmarked for direct relief, spokeswoman Carol Chastang said. No funds have been set aside to back an indirect program of bank-made, government-guaranteed loans — even though a 2008 law directed the SBA to do just that.
Working solo, the SBA has moved more rapidly than in previous large-scale disasters to get funds flowing to Harvey victims. As of Sunday, the agency had approved more than $100 million in loans, including 95 loans totaling $8.5 million to small businesses.
The SBA has also opened satellite offices in the Texas communities of Houston, Port Aransas and Rockport to serve as one-stop locations for small businesses that need assistance.
“Due to the severe property damage and economic losses Hurricane Harvey inflicted on businesses in Texas, we want to provide every available service to help get them back on their feet,” Tim Jeffcoat, the SBA’s Houston district director, said in a recent press release.
The SBA offers loans of up to $2 million to small businesses that have suffered economic injury or physical damage from a natural catastrophe. According to its financial report for fiscal year 2016, which ended Sept. 30, the agency has approved more than 25,000 disaster loans totaling $1.4 billion. That number will likely balloon as the government confronts fallout from two massive storms.
An improved SBA response won’t be as effective as letting local bankers “who know the customers best” shoulder some of the burden, said Guy Williams, president and CEO of the $1.7 billion-asset Gulf Coast Bank & Trust in New Orleans. Williams, who chaired the Louisiana Bankers Association in 2005, said he learned that lesson following Hurricane Katrina.
A 2007 report by the Government Accountability Office noted that, as late as May 2006, the SBA was taking an average of 74 days to process applications, significantly longer than its 21-day target. In response to that glacial pace, Williams repeatedly prodded Congress and the SBA to let banks process disaster loan applications.
With such memories fresh in his mind, Williams said he “strongly recommends” allowing banks into the disaster-lending field to get dollars flowing “quickly and effectively to the people who really need it.”
To be fair, bankers have at times been reluctant to pursue disaster funding, which is significantly riskier than conventional lending. As recently as 2015, in response to a request for comments, a trade group representing SBA lenders characterized such lending as “an inherently governmental function” that was “unsuited to private commercial lenders,” Chastang said.
The SBA had solicited lender comments as part of an effort to draft regulations implementing the Small Business Disaster Response and Loan Improvements Act of 2008. The law authorized the agency to guarantee disaster-relief loans for up to $2 million made by private lenders. To date, only one of the law’s sections, providing for small, immediate-assistance loans no larger than $25,000 has been authorized; no such loans have been made.
The General Accountability Office pointed out the slow implementation of the legislation — in 2014 and again in April — noting concerns raised by lenders about several provisions that proved to be a major stumbling block.
After Harvey and Irma, there are signs Congress wants to see the SBA kick things into high gear. Last week, a spokesman for Democrats on the House Small Business Committee said lawmakers from both parties have repeatedly pressed the SBA to implement the 2008 law, adding that Congress is prepared to work with the agency to address lenders’ concerns,
In fact, some bankers’ reservations are falling by the wayside.
In a snap poll conducted earlier last week by the Coleman Report, a newsletter for small-business lenders, 77% of the roughly 40 respondents indicated they would welcome the ability to approve and fund SBA-guaranteed disaster loans.
Bankers “want to help,” publisher Bob Coleman said. “They’re willing to do [disaster lending] and not make a dime off it.”
Scott Heitkamp, president and CEO of the $229 million-asset ValueBank Texas in Corpus Christi, said he would “welcome it greatly” if his bank, already an SBA preferred lender, could participate in the agency’s disaster lending effort.
Given the scale of the devastation wrought by Harvey, the SBA will need all the help it can get, and community banks are ready to assist, added Heitkamp, who is also chairman of the Independent Community Bankers of America.