In an eerie repeat of difficulties after Hurricane Katrina, the Small Business Administration is turning down more than two-thirds of Louisiana companies seeking Gulf oil spill relief loans, according to a top state official’s complaint to the federal agency Thursday.
fishermen-oil-jobs.JPGScott Threlkeld / The Times-PicayuneA crab boat is unloaded at Pomes Seafood on U.S. 90 near the Rigolets on May 14. Crab fishermen Troy Crain and Mike Ferrier brought in a paltry 326 pounds of crab from 500 traps in Lake Pontchartrain. ‘That’s pitiful,’ Crain said. ‘We lost money today.’ Crain and Ferrier said they normally fish in the crab-rich Biloxi Marsh, which has been closed because of the BP oil spill.
Louisiana Economic Development Secretary Stephen Moret sent a letter to SBA Administrator Karen Mills complaining that the SBA is using its normal loan approval processes even though the circumstances are extraordinary, and that the agency is turning down far too many Louisiana businesses because of “credit concerns” or because they can’t prove they’ll be able to repay quickly.
Moret wrote that hundreds of the 21,000 claims filed with BP for losses due to the oil spill come from struggling small businesses, and most of them need the SBA loans to carry them through until they receive payment from BP.
But, he noted in the letter, SBA has informed him that 70 percent of those applicants have been denied.
Moret wrote that his office has been trying to work with SBA officials and was told that the federal agency could change its usual policy to soften underwriting guidelines and to consider the promise of future BP payments “in lieu of SBA’s normal process for assessing credit history and repayment ability.”
But that apparently hasn’t happened. Moret noted that a similar process was used by SBA to help businesses after the Exxon Valdez tanker spill in Alaska in 1989.
SBA Assistant Secretary Jonathan Swain told The Times-Picayune that his agency typically approves more disaster loans as it goes along, and with a 30 percent approval rate now, SBA is already approaching its five-year average of 35 percent.
stephen_moret.JPGEllis Lucia,The Times-Picayune archiveEconomic Development Secretary Stephen Moret
Since the program for oil spill relief loans began May 6, SBA has received 380 business loan applications, approving 73 of them, he said. The agency has declined 185 applications in a two-level review process, while another 69 applications are still being reviewed, Swain said.
The 73 approved loans total $4.2 million, an average of $57,131 per loan.
Borrowers can defer payment for up to a year and then have 30 years to pay the money back at 4 percent interest. They can qualify for up to $2 million.
Swain said the agency does not use typical lending standards to determine who is creditworthy, and poor credit is not generally a reason for denial. What is a problem, he said, is a borrower’s ability to repay.
The problem in the case of the oil spill is that there is no other government agency making money immediately available, as FEMA would in case of a hurricane or tornado, Swain said. In those cases, SBA can loan money in nine days with the knowledge that aid will be coming soon.
Swain said the independent claims commission headed by Kenneth Feinberg was created because the BP claims process has not been efficient. But he also said the SBA must know how much a business is going to get from that process before it can approve a loan for someone who otherwise wouldn’t be able to repay.