Small Businesses Feel Lost in Bureaucratic Thicket

More than a month after Hurricane Katrina devastated New Orleans and other areas of the Gulf Coast states, the Small Business Administration has approved fewer than 600 disaster-assistance loans -- and has issued only 23 checks totaling $207,800.

As the much-criticized federal response shifts from rescue and recovery to reconstruction, the agency’s performance is coming under growing scrutiny as small-business owners vent their frustration.

Top Small Business Administration officials have been summoned to a congressional hearing today to explain the agency’s slow response.

But already this much is clear: The predictable problems engendered by bureaucratic red tape were aggravated by the severity and the reach of back-to-back hurricanes that caused unprecedented destruction of public infrastructure and private property. Damaged or missing personal and business records also have slowed the agency’s loan-making process.

Moreover, with more than a million Gulf Coast residents having abandoned their homes in search of shelter across the country -- and as they move from one location to another -- staying in touch with loan applicants has become a herculean task, said Herbert L. Mitchell, the agency’s associate administrator for disaster assistance.

Frequently, he said, loan applications require follow-up meetings and on-site property inspections. Even now, he said, some areas in the disaster zones remain inaccessible.

The processing of loan applications has been further complicated by a $23-million, year-old centralized computer system that was overwhelmed by the sudden workload.

In Louisiana, frustration with the agency has reached such a level that Gov. Kathleen Babineaux Blanco has set up an emergency bridge-loan program for the state’s 68,000 small businesses.

“The immediate crisis -- and it is a crisis -- is access to capital,” Blanco said last week in Washington. “Although the agency has been working closely with my staff, our businesses and their employees cannot wait that long.”

Blanco has an ally in Rep. Nydia M. Velazquez of New York, the top Democrat on the House Small Business Committee.

“My concern is that a lot of businesses are suffering, and they might be discouraged and not apply and will never go back,” Velazquez said in an interview.

She said she planned to ask pointed questions at her committee’s hearing today.

“We need to know what’s happening and what is preventing them from doing their job,” she said.

But Rep. Donald Manzullo (R-Ill.), the committee chairman, said he saw no need to rush agency loans to the region, especially before decisions were made about whether to rebuild in certain areas of New Orleans.

“Why give people loans when the water isn’t even dry?” he said in an interview this week. “The SBA has to make sure, before putting money into a loan, that the area can receive the money. Taxpayers would be much bent out of shape by money going into an area that’s not quite secure.”

Nevertheless, Manzullo said, he wants to ensure that the agency receives sufficient resources to deal with the hurricanes’ aftermath. He also raised the possibility of increasing the size of the agency’s loans.

In contrast to Manzullo, Sen. Olympia J. Snowe (R-Maine), chairwoman of the Senate Small Business and Entrepreneurship Committee, expressed frustration with the agency at a Senate Finance Committee hearing Thursday.

She asked Treasury Secretary John W. Snow whether Internal Revenue Service agents could be assigned to Small Business Administration offices in the Gulf Coast states to clarify the tax implications of assistance and to find copies of old tax filings destroyed in the hurricane.

“I don’t see why not,” Snow said. “We’ll look into this.”

In declared disasters, victims may borrow as much as $40,000 to repair or replace clothing, furniture, cars or appliances. Homeowners may borrow as much as $200,000 to repair a main residence. Businesses are eligible for loans of as much as $1.5 million. Interest rates range from 2.68% for individuals to 4% for businesses, with repayment terms as long as 30 years.

After four hurricanes hit Florida, 13 other states and Puerto Rico last year, the Small Business Administration provided $2.1 billion in loans to 64,500 residents and business owners in the disaster areas.

As of Thursday, the agency had mailed out 1.5 million application forms for disaster-assistance loans. So far, it has approved 586 loans totaling $36.4 million but has issued checks for only 23 of them. About 40,000 applications are pending.

The agency’s biggest disaster was the Northridge earthquake, after which it made 124,692 loans totaling $4.1 billion. Agency officials expect to exceed those numbers in the Gulf Coast.

In an interview, Mitchell declared himself satisfied with the agency’s response. Even before Hurricane Katrina made landfall, he said, the agency had begun activating its nationwide network of thousands of temporary workers -- loan officers, assessors, legal personnel -- so that they could rush to the storm-damaged areas as soon as possible.

In most cases, including the Florida hurricanes in 2004, such workers showed up within days. But after Katrina, large areas remained inaccessible for weeks because of debris or water, thus delaying the gathering of information required for loans.

“This emergency response period certainly has lasted longer than a lot of cases,” Mitchell said. Even this week, he said, some residents were allowed to return to their homes for the first time -- though only for a peek.

As the agency hastily brought on emergency personnel, its computer system was unable to keep up with the demand of training workers while also trying to respond to requests for help.

“It’s just the scale of the operation,” Mitchell said. “You have to imagine, logistically, of having to not only staff up but also increase the infrastructure -- space, computer capacity, equipment -- all those things that are required basically to deal with something on this scale.”

Eventually the agency was able to develop additional capacity for the job. There was “a learning curve,” Mitchell conceded. “The system is working fine.”

Still, the prospect of waiting for months on end for a loan is unacceptable to Randy and Lynn Perkins, whose video production business in Covington, La., north of New Orleans, was all but wiped out by Hurricane Katrina.

They applied for a loan a month ago, but have heard nothing.

When he tried to follow up by calling the Small Business Administration, Randy Perkins said, he was referred from one city to another -- and eventually ended up at the first office he called.

“We’re in a situation of not knowing what to do. We can survive another 30 days,” he said in a telephone interview this week. Unless assistance arrives soon, he said, “we’re just not going to make it.”

Times staff writer Joel Havemann contributed to this report.