Thursday, December 29, 2005

9/11 LOAN SCANDAL - SHAME!

As Paul Harvey says, "And now for the rest of the story."

This morning, the Washington Post reported that many, if not MOST, businesses that received low interest, government-backed loans that were earmarked to help businesses after the 9/11 terrorist attacks were never adversely affected by 9/11. They were unqualified to receive the billions of taxpayer-funded loans.

The program in question, the Supplementary Terrorist Activity Relief (STAR) program, was operated by the U.S. Small Business Administration (SBA).

Among some of the findings by the SBA's inspector general:
  • The inspector general concluded that only nine loan recipients in the 59 cases sampled appeared to be qualified for disaster loans.
  • Lenders who handed out billions of dollars in loans failed - 85 percent of the time - to document that recipients were actually hurt by the terrorism attacks and therefore eligible for the aid under the law, the report found.
  • Only two of 42 borrowers interviewed were aware they had obtained a STAR loan.
  • In cases where eligibility could not be established, 25 of 34 borrowers interviewed said they were not adversely affected by the terrorist attacks.
  • Thirty-six of 42 borrowers questioned said they were not asked, or could not recall if they were asked, about the impact of the attacks on their businesses.
In September 2005, the Associated Press also reported problems with the STAR program. The AP found that terrorism recovery loans went to a South Dakota radio station, a Virgin Islands perfume shop, a Utah dog boutique and more than 100 Dunkin' Donuts and Subway sandwich shops in various locations.

And this appeared to be at a time when businesses that were at New York's Ground Zero apparently couldn't get any assistance.

The Washington Post also reported that "SBA Administrator Hector Barreto put the best face on the findings, saying the audit did not find that loan recipients were unqualified for the program, although he did note that lender documentation could have been better."

Could have been better? This is Bush administration speak for "Here, here's billions of dollars of low-interest loans, folks. Sure, 9/11 had no effect on your business, but hey. It's only the Middle Class' tax money. Have fun."

THE REST OF THE STORY

But let's connect some more dots, shall we? The following is from the November 29, 2002 Washington Business Journal:

SBA lenders see STAR loans as short-term 7(a) solution

Kent Hoover

The president of the National Association of Government Guaranteed Lenders (NAGGL) urges SBA lenders to steer businesses into a special Sept. 11-related loan program to make up for the shortfall in the Small Business Administration's flagship 7(a) loan program.

The SBA has been forced to cut the size of the 7(a) program in half because of an increase in the subsidy rate for the government-guaranteed loans. Because it has less money to lend, the agency has reduced the maximum size of 7(a) loans from $2 million to $500,000.

The loans are a popular source of financing for start-ups and early-stage businesses, who often cannot find long-term loans with low monthly payments elsewhere.

Efforts to reduce the subsidy rate failed when the House adjourned Nov. 22 without taking up a Senate-passed bill that would have directed the SBA to recalculate this year's subsidy rate using a new econometric model scheduled to be put in place next fiscal year.

The legislation also would have given the 7(a) program any money left over from the Supplemental Terrorist Activity Relief program, which expires Jan. 10. This program provides reduced-fee loans to small businesses adversely affected by the Sept. 11 terrorist attacks but not eligible for SBA disaster loans.

Through Oct. 31, only $2.1 billion of the $4.5 billion authorized for STAR had been used.

Tony Wilkinson, who heads the trade association for SBA lenders, says small businesses should be encouraged to use the STAR program for every size of loan, not just loans above the 7(a) program's $500,000 cap.

"We must assume that the STAR funds will be on a 'use or lose' basis, and so we must spend the STAR money while it is available, and not use 7(a) appropriations," he wrote SBA lenders. "Otherwise, money may not be available late in FY 2003, even if we get the econometric model implemented for the current fiscal year."

The SBA, meanwhile, is encouraging borrowers to use its 504 program, which provides financing for real estate, machinery and equipment needs. The maximum size of these loans remains $2 million.

SBA lenders and small-business lobbyists will renew their push for changing the 7(a) program's subsidy rate when Congress returns in January.


HMMMM...From NAGGL's web site: "Over its history, NAGGL has grown the SBA lending industry, America's small business sector, and its own membership rolls by employing forward-thinking leadership on key issues. Whether enabling streamlined loan programs with greater lender autonomy, spearheading key secondary market improvements, or saving SBA programs from annihilation, NAGGL has helped the 7(a) program flourish --burgeoning from a $1 billion program in 1984 to a greater than $12 billion program today."

I have found no evidence of any Republican/Bush plot to subvert SBA processes here. Rather, Bush has a solid track record of battling against expansion of SBA programs. BUT clearly NAGGL is in the business of assisting banks and businesses with profiting from SBA loan programs. That's just what they've been doing since their founding in 1984.

But I can't help but wonder to what extent this Stillwater, Oklahoma-based organization may have over-reached in encouraging banks and businesses to take "full" advantage of the STAR loan program with the justification of "Hey we can't just leave this taxpayer money on the table if New York and D.C. businesses don't need it. We might as well relieve them thar taxpayers of the already appropriated money." - Those are my words, by the way.

Don't you get a whiff of loan fraud here? Like not being entirely truthful in the loan application process? Well how else would you explain a Utah dog boutique receiving a loan through a 9/11-specific government loan program?