WASHINGTON – This week the U.S. House and Senate enacted into law legislation authored by Senator John Kerry to improve and expedite financial assistance to businesses and homeowners devastated by disasters. Since 2003, nearly 1,700 Massachusetts residents have received over $64 million in low-interest loans from the federal government after a disaster – including floods, fire and drought.
Yesterday, President Bush vetoed the Farm Bill, which includes provisions from Kerry’s disaster loan program reform legislation (S. 163). The House and Senate both successfully voted to override the veto by 316-108 and 82-13. Kerry has been working on a bipartisan basis with Senator Olympia Snowe (R-Maine) for more than two and a half years to enact the legislation.
“In recent years, fires, floods, and droughts have hit some Massachusetts communities especially hard,” said Senator Kerry, Chairman of the Committee on Small Business and Entrepreneurship. “When I toured the massive flooding in the Merrimack Valley two years ago, saw the 75 homes and businesses damaged by a chemical explosion in Danvers in 2006, and visited the businesses that lost their livelihoods in the Uxbridge Bernat Mill fire last July, I saw the need to cut through red tape and make the government better prepared to respond to disasters. Our law increases access to timely assistance for Massachusetts businesses and homeowners devastated by disaster, so that when the next tragedy strikes, residents can get back in their homes and back on their feet quickly.”
Problems in the Small Business Administration’s disaster loan program were exposed in 2005 after Hurricane Katrina struck the Gulf Coast, where poor management and insufficient resources resulted in extensive delays in processing and disbursing financial assistance. In addition, Katrina showed the need for a “bridge” loan program to help businesses stay afloat until insurance or full loan payments can be made.
Over the last two years, several Massachusetts counties experienced severe flooding and drought conditions – including the worst flooding in Massachusetts in 70 years in the spring of 2006 – allowing residents to be eligible for the low-interest disaster loans. An explosion in Danvers and a mill fire in Uxbridge also resulted in federal disaster aid availability.
Below is a summary of disaster loan program reform provisions in the Food, Conservation and Energy Act of 2008 (the Farm Bill) that are now law:
CREATES BRIDGE LOAN PROGRAMS
The bill creates two programs for the private sector to administer small-dollar, short-term disaster loans for businesses. In a catastrophic disaster, the SBA can authorize private lenders to make 180 day loans of up to $150,000 at not more then 1 percent over the prime rate to businesses that are otherwise eligible for a disaster loan. In all disasters, private lenders can make loans of up to $25,000 and receive an SBA guaranty within 36 hours for up to 85 percent of the loan amount. Both loans would be rolled into a standard SBA disaster loan once it has been made.
UTILIZES THE PRIVATE SECTOR
This bill creates a program to allow private lenders to make disaster loans after a catastrophic disaster. These loans will carry the same terms and benefits as conventional SBA disaster loans. All lenders would be eligible to make loans to small businesses, but only lenders who are preferred lenders in the 7(a) program could make loans to individuals. The bill also provides the SBA with authority to pay a fee to private lenders to process loans during times when the SBA’s processing capabilities are overwhelmed in order to prevent application backlogs and ensure timely approval and disbursement of loan proceeds.
EXPANDS DISASTER ASSISTANCE TO AFFECTED BUSINESSES NATIONWIDE
The bill authorizes the SBA to make economic injury disaster loans to businesses located outside the geographic area of a catastrophic disaster, if they suffer economic injury as a direct result of the disaster. The businesses must have suffered identifiable economic injury as a direct result of the disaster, and this program will be available in periods for which the Administrator has declared eligibility for additional disaster assistance.
RAISES LOAN AMOUNTS AND INCREASES DEFERMENT PERIODS
The bill raises the maximum amount of an SBA disaster loan from the current level of $1,500,000 to $2,000,000, and raises the maximum amount of unsecured disaster loans from $10,000 to $14,000. It also gives the SBA Administrator the authority to make new disaster loans and refinance existing loans from Hurricanes Katrina and Rita with a four year deferment period. In addition, the bill allows non-profits located in the disaster area to apply for economic injury loans.
ENHANCESDISASTER PREPAREDNESS, COMMUNICATION, AND COORDINATION
The bill adds several requirements to improve the SBA’s coordination with FEMA. The SBA will also be required to conduct biennial disaster simulation exercises, create a comprehensive disaster response plan for various disaster scenarios, and improve its communication with the public when disaster assistance is made available. The bill also creates a new position for a high-level disaster planning expert who will operate independently from the Office of Disaster Assistance and will oversee the disaster planning and readiness of the agency. Finally, the bill will ensure that the SBA maintains adequate loan processing staff and reserve cadre.