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[pebbles]

Sept. 11 recovery loans went to many who didn't need them: AP Exclusive
06:32 PM EDT Sep 08
DIRK LAMMERS AND FRANK BASS

(AP) - The U.S. government's $5 billion US effort to help small businesses recover from the Sept. 11, 2001, attacks was so loosely managed that it gave low-interest loans to companies that didn't need terrorism relief - or even know they were getting it, The Associated Press has found.

And while some at New York's Ground Zero couldn't get assistance they desperately sought, companies far removed from the devastation - a South Dakota country radio station, a Virgin Islands perfume shop, a Utah dog boutique and more than 100 Dunkin' Donuts and Subway sandwich shops - had no problem winning the government-guaranteed loans.

Dentists and chiropractors in numerous cities, as well as an Oregon winery that sold trendy pinot noir to New York City restaurants also got assistance.

"That's scary. Nine-11 had nothing to do with this," said James Munsey, a Virginia entrepreneur who described himself as "beyond shocked" to learn his nearly $1 million loan to buy a special events company in Richmond was drawn from the Sept. 11 program.

"It would have been inappropriate for me to take this kind of loan," he said, noting that the company he bought suffered no ill effects from Sept. 11.

Arvind (Andy) Patel, 50, said he used his $350,000 loan in fall 2002 to remodel his Dunkin' Donuts shop in western New York state and never knew it was drawn through the Sept. 11 program.

"Not at all," Patel answered, when asked whether his business had been hurt by the attacks.

Government officials said they believe banks assigned some loans to the terror relief program without telling borrowers. Neither the government nor its participating banks said they could provide figures on how many businesses got loans that way.

But AP's countrywide investigation located businesses in dozens of states who said they did not know their loans were drawn from the Sept. 11 programs, suggesting at least hundreds of millions of dollars went to unwitting recipients.

The Small Business Administration, which administered the two programs that doled out Sept. 11 recovery loans, said it first learned of the problems through AP's review and was weighing whether an investigation was needed. But officials also acknowledged they intended to spread the post-Sept. 11 aid broadly because so many unexpected industries were hurt.

"We started seeing business (needing help) in areas you wouldn't think of - tourism, crop dusting, trade and transportation. ... So there were a lot of examples you wouldn't think of, at first blush," SBA Administrator Hector Barreto told AP.

In all, the government provided, approved or guaranteed nearly $4.9 billion in loans, and took credit for saving 20,000 jobs. That would put the average cost of saving a job at about a quarter million dollars each.

Of the 19,000 loans approved by the two programs, fewer than 11 per cent went to companies in New York City and Washington, according to an AP computer analysis of loan records obtained under the Freedom of Information Act.

"I had nothing here," said Shirla Yam, who runs a clothing store in the former shadows of the twin towers that got a $20,000 grant from a local advocacy group but no federal aid after Sept. 11. "I don't know if I'll be here next month."

Under one of the programs, SBA lent money directly to companies that provided detailed statements on how they were hurt. The other program provided incentives - and guaranteed loans from default - so banks could lend money to companies they determined were hurt by the post-Sept. 11 economic downturn.

Most loans were well below market rates - as low as four per cent, documents show.

SBA officials acknowledged the second program, the Supplementary Terrorism Activity Relief (STAR), left banks on an honour system to determine worthy loan recipients.

"One lender could have been really strict and specific about the borrower providing the documentation to prove that they were affected by the Sept. 11 attacks, and another banker may not have, or may have had ulterior motives for approving loans," said SBA spokeswoman Carol Chastang.

SBA documents obtained by AP show banks had a strong incentive to approve as many loans as possible from the terror program. The banks profited from the interest while incurring little risk because the government guaranteed 75 per cent to 85 per cent of each loan.