- The Washington Times - Friday, September 9, 2005

The government’s $5 billion effort to help small businesses recover from the September 11 attacks was so loosely managed that it gave low-interest loans to companies that didn’t need terrorism relief — or even know they were getting it, the Associated Press has found.

And while some at New York’s ground zero couldn’t get assistance they desperately sought, companies far removed from the devastation — a South Dakota country-music radio station, a Virgin Islands perfume shop — had no problem winning the government-guaranteed loans.

“That’s scary; 9/11 had nothing to do with this,” said James Munsey, a Virginia entrepreneur who described himself as “beyond shocked” to learn his nearly $1 million loan to buy a special-events company in Richmond was drawn from the September 11 program.

“It would have been inappropriate for me to take this kind of loan,” he said, stating the company he bought sustained no ill effects from September 11.

Arvind “Andy” Patel, 50, said he used his $350,000 loan in fall 2002 to remodel his Dunkin’ Donuts shop in western New York state and never knew it was drawn through the September 11 program.

“Not at all,” Mr. Patel answered when asked whether his business was hurt by the attacks.

Government officials said they believe banks assigned loans to the terror-relief program without telling borrowers. Neither the government nor its participating banks said they could provide figures on how many businesses got loans that way.

But AP’s nationwide investigation located businesses in dozens of states that said they did not know their loans were drawn from the September 11 programs, suggesting at least hundreds of millions of dollars went to unwitting recipients.

The Small Business Administration (SBA), which administered the two September 11 recovery loan programs, said it first learned of the problems through AP’s review and was weighing whether an investigation was needed. But officials acknowledged they intended to spread the post-September 11 aid broadly.

“We started seeing business [needing help] in areas you wouldn’t think of — tourism, crop dusting, trade and transportation. … So there were a lot of examples you wouldn’t think of, at first blush,” SBA Administrator Hector Barreto said.

Of the 19,000 loans approved by the two programs, fewer than 11 percent went to companies in New York City and Washington, according to an AP computer analysis of loan records obtained under the Freedom of Information Act. The pattern left some at New York’s ground zero seething.

“You have to take it back and give it to us. Even now, I could use it,” said Mike Yagudayev, who said the SBA would provide him only $20,000 of a $70,000 loan he requested to rebuild his hair salon flattened by the collapse of World Trade Center towers in New York.

Under one of the programs, SBA lent money directly to companies that provided detailed statements on how they were hurt. The other, the Supplementary Terrorism Activity Relief (STAR) program, provided incentives — and guaranteed loans from default — so banks could lend money to companies they determined were hurt by the post-September 11 economic downturn.

SBA documents obtained by AP show banks had a strong incentive to approve as many loans as possible from the terror program. The banks profited from the interest while incurring little risk because the government guaranteed 75 percent to 85 percent of each loan.

Banking officials said SBA encouraged the industry to use the post-September 11 programs liberally.

“They had personnel at our conference stand up and say if you cannot find a reason to move the loan over to the STAR program, contact us and we’ll help you find a reason to move it over,” recalled Tony Wilkinson, president of the National Association of Government Guaranteed Lenders.

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