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9/11 Loans: "every small business. . .became eligible to participate."
Yahoo News/AP
September 6, 2006

WASHINGTON - The government failed to ensure that recipients of terrorism-recovery loans were actually hurt by the Sept. 11, 2001, attacks, allowing banks to spread more than $3.7 billion in aid to whomever they wanted, Senate investigators concluded Wednesday.

The Senate Small Business and Entrepreneurship Committee sharply criticized the Bush administration's primary terrorism relief loan program, saying it was so loosely managed that "conceivably every small business in the country became eligible to participate."

The findings substantiate an Associated Press investigation last year that found government-backed Sept. 11 recovery loans went to small companies that weren't hurt by the attacks and didn't even know they were getting help designated for terror victims.

Sen. Olympia Snowe, R-Maine, who leads the Senate committee, said her investigation found no evidence that small companies that received the low-cost Supplemental Terrorist Activity Relief loans had tried to deceive the government.

Instead, she said, the problems stemmed from the Small Business Administration and the private lenders who approved the loans.

Bankers who could lend more money at less cost under the program had an incentive to push the loans, especially after SBA officials told lenders they wouldn't be second-guessed for making STAR loans, she said.

"The lack of clear guidelines allowed lenders to justify making a STAR loan to almost any borrower," the committee report said.

Nearly 3 of every 4 loans made under the program contained either insufficient or questionable documentation to show recipients were actually hurt by the Sept. 11 attacks, Snowe's committee found.

Michael Stamler, an SBA spokesman, said the agency didn't believe it "pushed lenders to abuse the program. ... However, we believe most of the report's findings are valid."

The guaranteed loan program was designed by Congress to help small businesses "adversely affected" by the Sept. 11 attacks on New York and Washington.

AP reported last year that recipients of the STAR loans ranged from more than 100 Dunkin' Donuts and Subway franchises to a motorcycle shop in Utah. Ultimately, barely 10 percent of all Sept. 11 direct and guaranteed recovery loans actually went to companies in the Washington and New York areas, AP found.

The Senate report Wednesday follows an investigation late last year by the SBA's own internal watchdog, which found that lenders frequently gave money to companies that weren't hurt by the attacks and didn't document why the loans were related to the Sept. 11 attacks.

Former SBA chief Hector Barreto, who resigned in April, had described the agency's oversight as "far from flawless" but insisted no loans were given to ineligible companies.

Associated Press writer Dirk Lammers contributed to this story from South Dakota.

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