SBA emergency assistance failed for Katrina

Introduction

The disastrous hurricane season of 2005 caught the Small Business Administration (SBA) napping. The SBA’s disaster loan program is the primary way homeowners and small-business owners receive federal funding to recover after a catastrophe. The SBA, however, never considered how it would react to an event the size of Hurricane Katrina, which was followed within the next 60 days by Hurricanes Rita and Wilma. Collectively the storms wreaked an estimated $118 billion in property damage, only a small portion of which was eligible for SBA action, across the Gulf Coast region. Within four months, SBA had a backlog of more than 204,000 applications for assistance.

Each application represented a hurricane victim waiting for the capital to rebuild. “I was amazed at how the delays, affecting the livelihood of my small business, did not seem to be important,” one owner told the House Small Business Committee in March 2006. “Time is critical in these situations. . . . [W]e still have nothing!” In April 2006, the SBA’s administrator, Hector Barreto, announced his resignation. When the SBA’s inspector assessed the situation in May 2006, the SBA was taking about 74 days on average to process an application, far longer than the 21 days the agency had set as its goal. Ultimately, the agency dispersed more than $6 billion in loans.

Follow-up:
In response to a request for comment, an agency spokeswoman noted that, under the SBA’s new administrator, Steven Preston, the application backlog diminished. The agency says it has positioned itself for future disasters by adding an Executive Office of Disaster Strategic Planning and Operations, drawing up a “comprehensive Disaster Recovery Plan, and setting up an online system for loan applications.”