Fixing the SBA: Disaster loans getting better

One area in which the SBA appears to have improved is its handling of disaster loans to small businesses and homeowners. Unlike 7(a) loans, which are granted by private lenders and ensured against default by the SBA, disaster loans are made directly from the government's coffers.

Hurricane Katrina made landfall in Louisiana in August 2005, flooding New Orleans. Ten months later, the SBA was still working on issuing emergency disaster loans, which took an average of 64 days to approve - and that was just for the loans to help homeowners rebuild, not restart businesses, Baruah says.

Louisiana Senator Mary Landrieu, who took over the chairmanship of the Senate Small Business Committee on Dec. 15, says the SBA "lacked the tools it needed to quickly and efficiently help Gulf Coast small businesses devastated by the storms. Businesses had to wait months for loan approvals and even longer for funds to actually reach business owner's hands - a simply unacceptable situation."

In response, the SBA revamped its system for coping with disasters. It upgraded technology, overhauled its processing procedures, and developed a reserve staff of temporary workers ready for a fast deployment.

All that is working, according to Coratolo, who says the SBA response to this year's floods in Iowa and hurricanes in Texas showed "a lot of improvement." In the wake of the latest disasters, the agency approved more than 20,000 loans totaling over $1 billion, and Baruah says the agency cut approval times for homeowner disaster loans down to 6 days.

The SBA's disaster capabilities will be tested if Mills pursues one of Obama's most radical suggestions for getting aid to struggling businesses. On the campaign trail, he called for the SBA to use its Disaster Lending Program to make loans directly to companies whose survival is threatened by the ongoing recession. Two senators echoed that suggestion in a November letter sent to Baruah.

Calling disaster loans "the most obvious and immediate way to get credit to small businesses suffering substantial economic injury due to the credit crisis," Senators John Kerry, D-Mass., and Charles Schumer, D-N.Y., urged Baruah to begin tapping that lending line.

"As you know, the Administration has the authority to make these loans and does not need Congressional action," the senators wrote. "Furthermore, because the SBA makes these loans directly instead of using the private sector to deliver them, this is a quick way to get loans to businesses because they do not need to wait until banks have liquidity freed up through the rescue package to make loans again."

Beyond loans, the SBA has also come under heavy fire for its oversight of government contracts. Federal law says 23% of government procurement contracts must go to small businesses, with a goal of at least 5% going to women-owned firms and 5% to minority-owned firms.

The government has never met those numbers, and aninvestigation in October by the Washington Post found at least $5 billion worth of contracts credited to small businesses that instead went to giant firms like Lockheed Martin and Dell, or their subsidiaries.

Baruah agrees that this is a substantial problem. But while the SBA oversees this requirement and reports on overall government compliance, he points out that it relies on each government agency to report the details of each contract issued - all six million of them. While the SBA is developing a plan to reduce reporting errors, "we don't have the resources to look over the shoulder of these contracting folks 24 hours a day," he says.

This monitoring is an area where the budget cuts and 26% staff reduction the SBA has seen since 2001 come into play, Hochberg writes. He also blames budget cuts for the SBA's reduced ability to monitor other government agencies' bundling of contracts, which can save money but reduce opportunities for small businesses to compete.

A bigger problem is with the percentage of contracts that are supposed to go to women-owned small businesses in industries in which they are underrepresented. Margot Dorfman, CEO of the U.S. Women's Chamber of Commerce, says the USWCC has found that many firms classified as "women-owned" by government agencies do not meet federal standards. And nine agencies, including the Air Force and departments of Treasury and State, cluster between half and four-fifths of their women-owned procurement dollars at just 10 companies, attempting to make their numbers without really expanding the opportunities available to women-owned small businesses, Dorfman says.

In the new administration, women will be more prominent than ever before in Washington's small business policymaking landscape. The Senate Small Business Committee's incoming chair, Mary Landrieu, and ranking minority member, Republican Olympia Snowe of Maine, will be working with House Small Business Committee Chairwoman Velázquez and nominated SBA head Karen Mills to address the myriad problems exacerbated by the ongoing economic turmoil.

"Small business will be an important focus of this administration as we work our way through these difficult economic times and as we grow the economy in the future," Mills pledged in her speech accepting her nomination.

To make good on that promise, she'll need to move quickly to revitalize her ailing agency. Main Street's businesses urgently need access to loans and contracting opportunities - and every delay reduces the number of businesses that will be left standing when the cash once again starts flowing.

How do you think Barack Obama's presidency will affect you and your wallet? What can he do to help you - and others - in these trying economic times? E-mail us at realstories@cnnmoney.com, and your thoughts could be part of an upcoming story.  

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