Snowe, Landrieu Introduce Small Business Disaster Relief Bill

Small Business Disaster Relief Bill Legislation reduces red tape for SBA loans.

WASHINGTON - U.S. Senator Olympia J. Snowe, R-Maine, Ranking Member and former Chair of the Senate Committee on Small Business and Entrepreneurship, and Senator Mary L. Landrieu, D-La., a committee member, today introduced the Private Disaster Loan Act. This legislation provides the Small Business Administration (SBA) with the resources necessary to help small businesses and homeowners recover in the wake of a disaster, such as the 2005 hurricanes Katrina and Rita.

"Victims of Hurricanes Katrina and Rita faced six to eight month delays waiting for SBA to approve their loans - and even longer to receive their cash," Sen. Landrieu said. "It is clear that we need to reform, streamline and strengthen the SBA with better tools to prepare for the next disaster. The bill allows local lenders and credit unions to make direct loans to disaster victims, with an SBA guarantee. This commonsense solution will quickly free up cash for disaster victims and remove the endless red tape that is hampering our recovery."

"With the SBA at the forefront of disaster relief efforts, it is essential that we find ways to ensure that this country's 25 million small businesses have a resource they can depend on when disaster strikes," Sen. Snowe said. "We learned all too well after the 2005 Gulf Coast hurricanes, it is critical for government programs to run smoothly and efficiently when called upon to aide disaster victims. We can all agree that that there were significant deficiencies with the SBA's disaster response effort, and I believe that we can all agree that this vital legislation will support the SBA in its continuing efforts to ensure those deficiencies are eliminate."

The Private Disaster Loan Act would create a new type of disaster loan, which would be issued by private banks with a partial Federal guarantee (rather than being directly provided by the Federal government). Under the proposal, these Private Disaster Loans would have the following characteristics:

• The loans will be made by private banks, which will have to apply for eligibility. The SBA will provide a guarantee for the loans, and can set the specifics of eligibility criteria.


• The program will be available to make loans for businesses under the following circumstances: a business will be eligible if the parish or county in which the business is located was declared a disaster area anytime in the last 24 months. The business will not have to show a nexus between its need for a loan, and the disaster that occurred. It will be enough to be located in that parish or county. The business does not have to have been located in the county before the disaster.


• Maximum loan size will be $2 million.


• Maximum term will be 25 years, if collateral is involved; otherwise, the maximum term for uncollateralized loans will be 15 years.


• The maximum guaranty will be 85 percent, no matter the size of the
  loan.


• SBA guaranty fee, which is 2 - 3.5 percent for regular 7(a) loans,
  will be zero


• There will be a loan origination fee, paid to lenders by the SBA
  using appropriated funds, of an amount previously negotiated between the SBA and the lender.


• The program will be authorized to use funds appropriated for the
  standard disaster loan program, and such appropriations will be used to reduce the interest rate in the program by up to 3percent. In other words, if enough appropriations are available, the interest rates charged by banks will be subsidized so that they are reduced by 3 percent. If less appropriations are available, the rates may only be reduced by 2 percent, 1.5 percent, zero, etc.


• The size standard used to determine a borrower's eligibility will
  be that currently used in the 7(a) program or that used in the 504 loan program (the bank may choose on a case by case basis).