Cindy Casanova is hoping it will be enough to keep her New Orleans film and video production company alive. Casanova, who co-owns the three-employee Casanova Productions with her husband, Bill, just received a $95,000 business disaster loan from the Small Business Administration. She had asked the agency for $400,000, the same amount as last year's revenues. "I'm sorry it wasn't for the full amount," says Casanova, "but I'm really glad we got something."
That puts her among the lucky. Thousands of other Gulf Coast entrepreneurs are anxiously waiting for the loans they need to get back on their feet. They have reason to worry. The SBA's loan processing has been unusually slow, and its decline rate -- the percentage of applications it rejects -- has been uncommonly high.
The SBA provides low-interest, 30-year disaster assistance loans of up to $1.5 million for businesses to repair damage to real estate, machinery, equipment, and inventory, and to business owners unable to pay their bills or meet operating expenses. By Nov. 10, almost 30,000 loan applications had been submitted by businesses affected by Hurricanes Katrina and Rita, which hit on Aug. 29 and Sept. 24, respectively. The SBA had managed to process only 9% of those, approving 949 and declining 1,835.
"People have complained about the slowness of the process and the high rate of turndowns," says Virgil Robinson, president of Dryades Federal Savings Bank in New Orleans. "They're saying: 'If this is supposed to help, please don't help us.' " Congressional Democrats are harsher: "The Administration simply cannot handle the demand here," says Nydia M. Velázquez (D-N.Y.), the ranking Democrat on the House Small Business Committee. "They need to formulate a strategy." Two congressional hearings have been held on the SBA's procedures, and the General Accounting Office is investigating.
The SBA admits it has been overwhelmed by the scope of the devastation. "After [Hurricane] Charley last year, we had 22,000 or 23,000 disaster loan applications in six weeks. Here, we're at 220,000 [homeowner and business applications] in 10 weeks," says Herb Mitchell, associate administrator of the SBA Office of Disaster Assistance. At the Senate Small Business & Entrepreneurship hearing on Nov. 8, SBA administrator Hector Barreto said the decline rate appears to be unusually high because disaster employees used to screen out obviously unqualified applicants by hand. Now every applicant is entered into the computer system. The agency typically rejects applicants with a poor credit history or an inability to repay.
The SBA has made other changes. The agency's disaster staff has grown from 880 employees before Katrina to 4,000. The agency has relaxed its loan filing requirements, including waiving the submission of three years of business tax returns. Applicants for loans of less than $50,000 no longer have to provide their last three years' monthly sales analysis or a title or record search. And in early November, the SBA launched a pilot program aimed at entrepreneurs affected by Katrina. It will use a streamlined process to provide loans of up to $150,000 for working capital -- and provide decisions within 24 hours.
Faster cash is exactly what some entrepreneurs need. Roberto Barragan, president of the Valley Economic Development Center, which handled some loans after the 1994 Northridge (Calif.) earthquake, says that after that disaster, 60% to 70% of applicants got loans within two years, while others waited five. "By the time two years goes by, many small businesses will never come back," says Barragan.
Gulf Coast entrepreneurs may be especially vulnerable. "Even when there was a boom in the rest of the country, we didn't feel it," says John Vinturella, adjunct professor of entrepreneurship at Tulane University. Louisiana's per capita income is the 43rd lowest in the nation, and Mississippi's is dead last, says the Commerce Dept. The two states were 43rd and 42nd in venture-capital investments in 2003-04, according to PricewaterhouseCoopers' MoneyTree survey.
For her part, Casanova recently got a call from a hospital near New Orleans that may make a television commercial. "They want us to help them get the word out that they're still in business," says Casanova. She hopes she'll be able to say the same.
By Karen E. Klein