By Ned Randolph

Facing a backlog of tens of thousands of loan applications and enduring months of criticism, the U.S. Small Business Administration now says it will solicit bids from private banks and other entities to process and close disaster-loan applications from the Gulf region.

Under the new “Disaster Loan Partners Initiative,” the SBA would solicit bids from the private sector on contracts slated to end Sept. 30, with four additional option years.

“This is something we’ve been pushing for quite some time since the hurricanes,” said Peter Gwaltney with the Louisiana Bankers Association. “We’re delighted they decided to go in this direction.”

The plan largely mirrors a proposal last fall by Sen. Mary Landrieu, D-La., and Sen. John Kerry, D-Mass., the Bush administration rejected at the time.

Under that plan, the SBA would pay lenders a fee to help expedite disaster-loan processing on an emergency basis as a pilot program.

It was also brought up at a hearing on Katrina on Nov. 8. At the time, SBA Administrator Hector Barreto said the agency didn’t need the program because it was more than tripling the number of loan officers to process applications and SBA had launched a program that let banks issue disaster loans directly.

Called “GO-Loan,” that program allowed banks to extend SBA-backed loans for up to $150,000. The SBA would guarantee 85 percent of the loan. To date however, only 148 GO-Loans have been approved by SBA, totaling $13 million.

The interest rate on GO-Loans is higher than the prime lending rate, which makes them much more expensive than the subsidized disaster loans, which range from 2.5 percent interest on home loans and 4 percent interest on business loans.

Meanwhile, the SBA has been inundated with more than 381,000 disaster loan applications since Katrina, with more expected before a March 11 filing deadline.

About 137,000 applications are still on the table waiting to be processed.

Barreto said the new Disaster Loan Partners Initiative will boost the capacity of the SBA to process and close loans.

“This partnership with the private sector will allow local financial institutions to become more involved in the rebuilding efforts. We believe they know their communities best and we are eager to engage them in this initiative,” he said in a release.

But such a move could have come much earlier, according to Landrieu’s office.

“This is what we asked for back in October and November,” Landrieu spokesman Brian Richardson said. “Kerry specifically asked a question at a Senate hearing to do this, and they said, ‘No, they had it covered.’ ”

He added, “This is good news for Louisiana, but another example of the SBA dragging its feet and refusing a good idea that was widely supported not only by us but by bankers and loan institutions around the state.”

Landrieu has also been critical of the SBA after the agency requested an emergency reallocation by Congress of $100 million in February, two weeks before it would have run out of money.

The Bush administration has also asked Congress to transfer $1 billion in unused funds from the Federal Emergency Management Agency to the SBA’s disaster loan program.

Landrieu said the request was “throwing a band-aid over SBA’s gaping wounds.”

SBA spokeswoman Anne Marie Frawley said the supplemental appropriations are needed because of the unanticipated costs after the 2005 hurricane season.

“Requesting additional funds through a supplemental is a normal thing,” she said. “They evaluate based on a five-year estimate the money they need to respond to specific disasters.”

She added, “There’s been an unprecedented request for disaster funds because the devastation covered 90,000 square miles.”

Richardson said Landrieu is planning to introduce legislation to tighten oversight of the SBA.

“We are looking into ways to hold the SBA more responsible and accountable toward fulfilling its duties,” he said. “These problems have to stop. Foot dragging has to stop. We need action immediately and consistently.”