SBA Disaster-Loan Program Still a Disaster

By Veronique de Rugy.

"The Wall Street Journal has a piece about the Small Business Administration disaster-loan program’s performance during the pandemic, and concludes that it was terrible. The article is interesting and worth a read as it highlights the ordeal that small-business owners went through when trying to deal with the SBA and its process at a time of high distress. Here is the WSJ:

The extraordinary demand has overwhelmed the SBA, best known for guaranteeing loans to small businesses, and left many entrepreneurs in limbo as they seek to recover. Business owners complain of unprocessed aid applications, waiting hours on the phone with questions that go unanswered and technological glitches. Its inspector general warned of signs of rampant fraud.

At the heart of many of the problems is the Office of Disaster Assistance, a little-known unit that issued nearly a quarter of the agency’s pandemic loan volume. In normal times, the office provides loans after floods and other natural disasters.  . . .

“On the disaster side, we did a terrible job,” said Robert Scott, a former SBA regional administrator who spent several weeks in Washington early in the pandemic helping coordinate the agency’s response . . .

The Journal tells the story of small-business owner Samantha Harvey. It took her many weeks, phone calls to SBA, and headaches to get her application accepted after glitches in the system only to still be waiting for an answer months later. She notes:

Dealing with the SBA “puts you in a state of confusion and doesn’t allow you to focus on what you should be doing, and that is to continue to rebuild your business after a pandemic,” Ms. Harvey said.

Sadly, Ms. Harvey’s experience with the SBA’s disaster program is neither unique nor limited to this disaster. In fact, I think this is the flaw in this WSJ story, as it leaves readers with the impression that most of the problems with the agency’s response this time around were due to the remarkably high demand for help. Of course, the demand was enormous. But the truth is that SBA’s responses to disasters are always awful and terribly painful for those business owners who are trying to get help from the agency.

I wrote about how catastrophic previous SBA disaster responses were here and here, and so have others. I even warned last March that using the SBA to help small businesses during this pandemic would inevitably inflict a lot of headaches on these poor business owners. I also wrote about this for Reason last year, here, and highlighted examples of horror stories from the past that are eerily identical to the ones reported in the WSJ story.

This explains why I thought it was a mistake to give the agency this responsibility during the pandemic. It demonstrates either legislators’ inability to learn from the past or an incredible naïveté in thinking that it would be any better this time around. Either way, it is unacceptable.

Will Congress learn from this mess? I doubt it. In fact, I assume they will demand reforms, and these reforms will improve little to nothing. As a reminder, here is a Politico story from six years ago looking at the impact of reforms put in place to try to fix the SBA’s Katrina disaster response. The result was terrible.

Seven years ago, after Hurricane Katrina wiped out entire neighborhoods in the Mississippi Delta, Congress had an idea to help local businesses recover from the next big one. Small companies had found they just didn’t have the money to rebuild and keep the lights on until their customers returned. So in 2008, Congress created three new programs to get loans to small businesses quickly.

Since the new emergency lending programs were born, American small businesses have been hit by Hurricane Irene, Hurricane Sandy, and other disasters.

And here’s how many loans the new programs have secured for small businesses in that time: Zero."