SBA Relief Lending Questioned
Note: This article has been modified from an earlier version. See clarification below.
September 13, 2005--Senator Olympia Snowe of Maine leveled a stark rebuke last Friday at the federal Small Business Administration alleging "flagrant abuse" of loans intended to help small business cope with the attacks of Sept. 11, 2001.
The criticism comes as the SBA is preparing $2.6 billion for loans to help homeowners, renters, and small business cover uninsured damage from Hurricane Katrina.
Snowe claims that the loans were given to businesses that should not have qualified as suffering from the terrorist attacks. (SBA administrator Hector Barreto responded to the charges on Sept. 23, 2005.)
The Supplemental Terrorist Activity Relief Act, or STAR, was passed by Congress in 2002 to provide the SBA with funds for guaranteeing market rate loans from private banks to small businesses that could demonstrate economic losses from the attacks. As chair of the Senate Small Business and Entrepreneurship Committee, Snowe has launched an investigation into how the Small Business Administration awarded loans to help businesses around the country recover from the Sept. 11, 2001 terrorist attacks.
The STAR legislation "was not passed to grant low-interest loans to liquor stores, donut shops, dog boutiques, and perfume shops located hundreds and thousands of miles away from Ground Zero, with no relation to, or damage from, the terrorist attacks," Snowe said in her statement.
SBA documents list thousands of businesses well removed from Ground Zero that received loans through the STAR program. Although it remains unclear to what extent, if any, companies listed were impacted by the Sept. 11 attacks, the following are among those on the list located outside of the New York City area: a laundromat in Phoenix, Arizona, that received a $144,000 loan; a liquor store in Milpitas, California, that received two loans totaling $500,000; and a Dunkin Donuts franchisee in Stroudsburg, Pennsylvania, that received a $550,000 loan.
On Sept. 9, an NBC Universal affiliate in Kentucky reported that $26 million in low-interest federal loans earmarked for 9/11 recovery was given to 84 Kentucky businesses including a tanning salon, a wood treatment company, and a restaurant.
According to Michael Stamler, a spokesperson for the Small Business Administration, the STAR program guaranteed 8,200 loans totaling $3.7 billion. "The loans were intended to help small businesses that were adversely affected by 9/11, but could not qualify for disaster assistance," Stamler said, referring to Economic Injury Disaster Loans, or EIDLs, the type of loan that will be given to businesses impacted by Hurricane Katrina.
EIDLs are low-interest loans, typically 4%, made to small businesses whose operations are directly affected by catastrophic events.
EIDLs have not come under fire by Snowe or others. An Aug. 2004 report from the Government Accountability Office, a federal watchdog, found that there were no abuses of the federal disaster assistance loan program by the SBA.
The Senate committee has not announced when it will begin an investigation into the STAR loan program.
Clarification: An earlier version of this article implied that companies that received STAR loans after Sept. 11 did not have any basis for receiving the loans. It remains unclear whether they qualified or not.