By Tu-Uyen Tran

When the U.S. Small Business Administration started selling off its disaster loans two years ago, U.S. Sen. Byron Dorgan objected on the grounds that it would hurt rather than help flood-stricken families in Grand Forks and elsewhere.

Now, he said, a study shows he was right.

The U.S. General Accounting Office recently completed a report on the SBA's practice of selling loans to private investors in which it recommended such sales be stopped, at least temporarily. The report was compiled for Sen. John Kerry, D-Mass., the ranking minority member on the Senate's Small Business and Entrepreneurship Committee. Dorgan is not a member of the committee, but Sen. Norm Coleman, R-Minn., is.

It's not clear how many Grand Forks loans remain unsold, though Dorgan doesn't think there are many.

"There's not much pleasure in discovering I was right," he said.

The SBA said it is trying to resolve the problems. It said the GAO failed to appreciate the complexity of the loan sales.

SBA loan sales have been controversial in Grand Forks since the start. The practice began triggering alarm bells among local businesspeople back in 1999 as they discovered its implications.

Many local residents and businesses took out SBA loans after the 1997 flood. Such loans came with low interest rates and the SBA dealt with borrowers rather flexibly.

The private investors who bought these loans were not so flexible, some borrowers complained.

The GAO report said the SBA had no reliable mechanism for addressing such complaints. Investigators found only one field office in which complaints had been recorded. Of the 50 complaints this office received, 45 mentioned problems with loan buyers.

The report also said the SBA miscalculated the financial benefits of selling the loans in the first place. The SBA's motivation was to reduce the cost of servicing the debts by selling the loans, at a loss, to private investors.

The GAO recommended that the SBA put a freeze on loan sales until these problems are resolved.

In its response, the SBA said it agreed with many of the GAO's findings and is addressing them. It should be done by March, it said. The SBA noted, though, that in making a decision to sell loans, it had consulted with financial experts inside and outside the government.

The SBA said many of the complaints were from borrowers who wanted to change the terms of the loans.

Asked if constituents have complained lately to him, Dorgan said he hasn't heard anything for a while.

He said he plans to talk with SBA officials soon and apply a little pressure. That opportunity would come in the spring, he said, when he gets his hands on the appropriations bill.