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Baker Introduces Bill to Improve Small Business Disaster Loan Program

Location: Washington, DC

Baker introduces bill to improve small business disaster loan program

U.S. Rep. Richard Baker, R-Baton Rouge, was joined today by Rep. Charles Melancon in sponsoring legislation to improve and expand the SBA's Gulf Opportunity Loan Program (GO Loans) for small businesses in or relocating to counties and parishes declared major disaster areas.

The bill, cosponsored by the entire Louisiana House delegation, is similar to a bill introduced by Baker last summer (HR 5924), and expands on the Go Loan disaster loan program that allowed private banks to issue disaster loans. Banks would be pre-qualified by the SBA, with a set application process, and could work with existing or new customers to get them capital they need in a timely fashion. By partnering with private lenders, the SBA can work with them to get funds to small businesses, which are critical to the survival of the affected community.

"There were lessons learned after Katrina and Rita, and we have a responsibility to apply those lessons to improve recovery response in future disasters," said Baker. "I'm pleased to see our delegation working together so closely to help speed up the vital process of getting much needed capital into the hands of small business owners to help them get back on their feet."

In response to Hurricanes Katrina and Rita, the GO Loans program offered a maximum loan of $150,000 backed by an 85 percent SBA guarantee. The goal was to process the loan application in one day, using SBA Express lenders offering a maximum interest rate of prime plus 6.5 percent on loans of $50,000 and prime plus 4.5 percent on larger loans.

The pilot program was somewhat hampered, however, because of perceived limits in the loan sizes and rates as well as problems of bureaucratic inefficiencies.

This bill attempts to enhance and streamline the program by:

· Allowing SBA approved lenders to process SBA disaster loans;
· Increasing the maximum loan amount to $2 million, and allowing up to 25 years to maturity, providing an 85 percent government guarantee of the loans;
· Allowing more flexibility for the banks on the rates they can charge;
· Allowing SBA to establish an online application process and to work with the lenders on streamlining the applications; and
· Allowing qualified lenders to use their own documentation, if already approved by the SBA Administrator.

In Louisiana, where 90 percent of workers are employed by small businesses with fewer than 30 employees, this private-sector focused disaster loan program improves the recovery process by allowing eligible businesses to contact banks directly and get a fast response. Because local banks already have physical presence and knowledge of the area, and existing SBA lenders have expertise and knowledge of SBA loan products to get small businesses the best service, SBA would not have to hire and train hundreds of additional employees.

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