Small Bungling Administration
In the aftermath of the Gulf Coast hurricanes, entrepreneurs have found little government aid and lots of red tape.
By Arlyn Tobias Gajilan

(FORTUNE Small Business) – All John Rowland wants to do is get back to cooking. "It's what I do best," says Rowland, 46, the owner of Southern Hospitality Catering, a 21-year-old New Orleans company. A day before Hurricane Katrina tore through his business's Warehouse District neighborhood, the entrepreneur was in his work kitchen ladling melted pralines onto Havarti cheese, a combo he serves on graham crackers. "It's our signature dish," explains Rowland, who was prepping food for 1,200 people. But a month after the storm, his walk-in refrigerators are empty, his cupboards are bare, and his future is uncertain. "I'm in the party business, but the city won't be ready to party for a while," he says. His firm has already lost $100,000 in canceled bookings and in looted or rotted inventory. Insurance will cover some of that, but his policy goes only so far. For help, he and the estimated 200,000 other small businesses shuttered by Katrina and Rita are looking to the federal government.

Sadly, they aren't finding much. Despite a disaster-relief package that may eventually exceed $200 billion and a presidential pledge to "take the side of entrepreneurs as they lead the economic revival of the gulf region," what little federal help that exists for small business comes in a tar pit of bureaucracy. As FSB went to press a month after Katrina first struck, the only agency an entrepreneur could turn to was the Small Business Administration. What does it offer? Loans. And long waits for answers. With 80 pieces of federal relief legislation introduced post-Katrina, only four bills focus on the needs of small business, and each is fraught with political posturing. At presstime none had passed, leaving entrepreneurs wondering when politicians' pledges of action will turn into dollars.

For many the frustration began when they registered as hurricane victims with the Federal Emergency Management Agency. A FEMA case number is needed to be eligible for any relief program, including an SBA disaster loan. Getting through to FEMA hasn't been easy. Weeks after the hurricane, the agency's 800 number rang busy four out of the five times we called, and the overburdened website didn't always work; when it stalled, the site referred us to the 800 number.

That hurdle cleared, an entrepreneur's next stop is the SBA. It offers direct disaster loans of as much as $1.5 million, with interest rates as low as 4% and terms as long as 30 years. (At presstime Congress had voted to increase the limit to $10 million, but President Bush had yet to sign the bill into law.) The SBA's website describes the application process as similar to what "generally is required for a bank loan." Business owners who've dutifully filled out the SBA's 15-page form and are lucky enough to have evacuated with all their financial documentation must wait for an SBA loan officer to inspect their damaged property. Best-case scenario: after that inspection, at least a 30-day wait for approval and another 30 to 60 days to receive money. "At the end of the day, that's a whole lot of hassle just to go into debt," says Rowland.

It is true that the SBA's workload is staggering. The agency expects to receive one million applications, some from entrepreneurs, but most from homeowners (see box on page 16). To deal with the load, the SBA's 900-person staff has ballooned to nearly 4,000. Herb Mitchell, the associate administrator of the SBA's office of disaster assistance, says the agency is used to managing the staffing swings brought on by the hurricane season. Nevertheless, it seemed flatfooted as Katrina spent days gathering up its Category 5 winds. After the storm slammed into the Gulf Coast, the SBA's new Disaster Computer Management System failed to do what it was designed to do: speed up loan processing from weeks to days. As it turned out, just 121 field inspectors had been trained in the new system. The SBA quickly hired and trained hundreds of new inspectors, but its new computer servers stumbled under the strain of 2,000 simultaneous users. Unreliable Internet connections in the region and the system's slowdown meant field officers occasionally couldn't handle new applications or file reports.

A month after Katrina, the SBA had received 3,218 applications for small-business disaster loans but had approved only 12. "That's crazy," says Senator John Kerry of Massachusetts, the ranking Democrat on the Senate's subcommittee on small business and entrepreneurship. "First FEMA fell asleep at the switch, and now the SBA is telling businesses to wait.... The bottom line is that they talk the talk but don't walk the walk when it comes to helping small businesses."

The Bush administration has proposed a patchwork of other remedies. The Department of Labor is granting unemployment benefits to self-employed workers. Businesses in the newly created Gulf Opportunity Zone--a 90,000-square-mile area stretching from Alabama to Louisiana--are being promised tax incentives to stay in business, although the only one on the table at presstime was a deduction of as much as $200,000 for new equipment. That's fine, but some small businesses may not survive until April 15, says Charlie Hodson, director of the National Federation for Independent Business's office in Louisiana. "Small businesses need money now," he says.

The small-business aid bills seem delayed by partisan politicking. The first was a bipartisan, $595 million recovery package authored by Kerry and Senators Mary Landrieu (D-Louisiana), Olympia Snowe (R-Maine), and David Vitter (R-Louisiana). Among other provisions, it called for small-business grants to be administered by each state and for a one-year deferral of SBA disaster-loan payments. Tacked on as an amendment to an appropriations bill, the package was parked in the House-Senate conference committee for final approval. But then the identical package resurfaced on Sept. 19, now gussied up as the "Small Business, Homeowners, and Renters Disaster Relief Act of 2005." In its second incarnation, the text was no different, but the byline was purely Republican. Those taking credit: Senators Snowe, Vitter, and Jim Talent (R-Missouri). Curiously, two days after we asked Kerry's and Snowe's aides about that move, a third version of the bill was released, this time with restored bipartisanship.

As government agencies were busy earning reputations for inefficiency and bureaucracy, entrepreneurs and business groups were fast-tracking their own relief efforts. Just two weeks after Katrina washed away nearly a third of the state's economy, the Louisiana Association of Business and Industry, a group with about 2,800 small-business members, began accepting donations for its own Small Business Disaster Relief Fund. With the help of chambers of commerce throughout the country, trade associations, and "loads of $50 and $100 donations" from small-business owners, LABI has raised more than $150,000. "These are grants to get business back up and running as soon as possible," says the association's spokesperson, Brigitte Nieland. At presstime, 600 businesses had filled out the six-page application, and LABI had doled out $35,000 in its first round of grants. [For more on how entrepreneurs are helping victims, see page 58.]

John Rowland, who admits he "sucks at waiting on others to fix things," is speaking out. On Sept. 22 he testified before the Senate Committee on Small Business, urging the committee to push through the small-business relief act. Rowland doesn't care who sponsors it as long as more is done for small businesses such as his. He is considering reorienting his catering company to feed the rebuilding crews now populating New Orleans. "I'm not a public speaker or a politician," he says. "I'm just a caterer who wants to get back to cooking."