Democrats Back RECOVER Act for Small Businesses Hit by Storms

Posted March 8, 2007 at 4:14pm

Democrats are trying to force the Small Business Administration to make more favorable loans to small businesses recovering from Gulf Coast hurricanes, despite objections from the agency that additional lending would increase costs to borrowers and to the federal government.

Democrats are backing the Relief for Entrepreneurs: Coordination of Objectives and Values for Effective Recovery Act (H.R. 1361), which would make small businesses and nonprofits eligible for disaster loans for up to 20 percent of the cost of the damage to their property. It also would require the SBA to develop extensive plans for responding to disaster and hold disaster simulation exercises.

The bill is the latest attempt by Democrats to propose changes in federal agency policy and operations in response to the Gulf Coast hurricanes. Earlier this week, the House Financial Services Committee approved changes in housing aid policy to benefit hurricane victims.

The RECOVER Act, which has 10 co-sponsors, is scheduled to be marked up next week by the full committee.

Sponsored by Small Business Chairwoman Nydia Velázquez (D-N.Y.), the legislation would give the SBA the authority to make small short-term loans to business owners whose property was damaged by the disaster. Under the bill, such bridge loans would have to be approved or disapproved within 36 hours from the time they were requested.

The bill also would raise the cap on small-business loans to $3 million from $1.5 million and allow small businesses to start repayment 12 months after the final disbursement of the loan. Borrowers also would be able to defer loans for up to four years.

Velázquez said that the SBA needs to move away from the “current one-size-fits-all approach and broaden the types of aid for small business,” to respond to small-business owners’ diverse needs, particularly during a disaster.

Herb Mitchell, the SBA’s associate administrator for disaster assistance, told the House Small Business Committee today that a disaster plan is already under way and will be implemented before the beginning of the hurricane season in June.

Mitchell, however, opposed a provision of the bills that would require the SBA to offer bridge loans, saying they would result in borrowers paying higher fees and interest rates on short-term financing.

Rep. Charlie Melancon (D-La.) asked Mitchell why the SBA would oppose providing additional disaster aid.

“So the SBA is not about helping American people get back on their feet after a disaster? They’re about the cost of a program?” Melancon said. “I plead with you go to back to your agency and make this work for people and quit giving them the runaround.”

One provision opposed by the SBA would allow for grants of up to $100,000 for small-business owners affected by the 2005 Gulf Coast hurricanes and a waive a requirement that those recipients repay outstanding SBA loans with grant funds.

”Under this provision a disaster victim could receive as much as twice the amount of federal assistance for the same loss, require taxpayers to pay for the same damage twice.” Mitchell said.

Rep. Richard Baker (R-La.) — whose district, like Melancon’s, was hit by Hurricane Katrina — testified today that the Gulf Coast is not receiving aid quickly enough.

Of the $10 billion in assistance made available for Gulf Coast recovery, Baker said, only $31 million — or about $68,000 per household — had been paid out.

“At that rate it will take 42.6 years to spend it, and we don’t have 42.6 years,” Baker said.