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SBA abruptly drops disaster loan limit from $2M to $150K

Minneapolis Star Tribune logo Minneapolis Star Tribune 5/14/2020 By Jeffrey Meitrodt, Star Tribune

With no public notice, the U.S. Small Business Administration abruptly changed the rules on its disaster loan program last week, sparking outrage among business owners and some members of Congress.

The move even upset the region's top SBA administrator, who said he was unaware of the rule change and embarrassed by the lack of communication.

At issue is a new policy that limits the amount of money a business can borrow through the Economic Injury Disaster Loan program, one of two key programs aimed at helping companies survive a coronavirus-induced recession.

Congress gave the SBA $50 billion to fund the disaster loan program, but the agency has been swamped with more than 5 million applications, leaving the agency without enough funds to cover all of the loans requested, according to a Star Tribune analysis of the program's lending activity. Business owners also have obtained more than $500 billion in relief through the Paycheck Protection Program.

In recent days, business owners have been informed that instead of borrowing up to $2 million, the SBA can now provide no more than $150,000 through the disaster loan program. The agency also backtracked on previous commitments. Company owners who were expecting to receive hundreds of thousands of dollars through the program told the Star Tribune that they obtained a fraction of that amount.

Melanie Koerperich, who owns an employment service in the state of Virginia, said she recently received $12,600 even though her company qualified for a loan of about $450,000.

"I was like, 'Did you forget a few zeros?' " said Koeperich, a member of the leadership council of the National Small Business Association, a nonpartisan advocacy group. "It was just a slap in the face."

Basim Sabri, who owns a mall in Minneapolis that caters to the Somali-American community, was hoping to obtain the full $2 million through the program, noting his monthly revenue has dropped from more than $1 million to about $120,000 now that the vast majority of his 500 or so tenants have shut down.

"If they offer me $150,000, I will probably reject it," said Sabri, noting that he will seek funding from banks or private investors instead. "It is very sad that the government you support all your life lets you down when you need them. They leave you stranded."

Minneapolis architect James Garrett Jr., who hoped to land an EIDL loan of about $400,000, said he will take the $150,000 if he can get it.

"There is some type of path forward, but I am frustrated that our path seems so much more complicated than some of these larger institutions that only qualify as a small business under some kind of technicality," said Garrett, referring to media coverage of publicly owned companies that obtained millions of dollars in loans through the PPP program. "It's like the small guys are subjected to more scrutiny."

Regional SBA Administrator Robert Scott, who oversees Minnesota and five other Midwestern states, initially scoffed at the Star Tribune's questions about the new policy, saying the rumors could have been stirred up by "politically motivated" Democrats. But after the Star Tribune presented Scott with accounts from multiple business owners, he conceded that the agency's Office of Disaster Assistance must have changed the rules without informing top SBA officials.

"It has not been communicated to people like me who are working with small businesses," Scott said. "You can quote me on that."

When pressed for details on how the communication snafu could have happened, Scott said, "It is our program, but it is almost like the disaster assistance program is a different agency. It's not, but they operate kind of differently. I am not trying to make excuses."

Scott referred questions about the new policy to Alejandro Contreras, Director of Preparedness, Communication and Coordination at SBA's Office of Disaster Assistance. Contreras did not respond to multiple e-mails from the Star Tribune.

Though the SBA has been providing daily updates on PPP activity, the agency has provided a single report on disaster loan activity. On April 24, the SBA reported it had provided about $8 billion in EIDL loans to 38,984 applicants.

On May 9, U.S. Sen. Chuck Schumer, D-N.Y., and two other Senate Democrats sent a letter to SBA Administrator Jovita Carranza complaining about widespread "mismanagement" of the EIDL program, noting the agency had imposed the new loan limits without consulting with Congress or even notifying the public.

The senators asked Carranza to reverse the policy and allow companies to borrow up to $2 million again. They also asked the agency to reopen the application process to all small businesses. The SBA stopped taking applications from all companies, with the exception of agricultural firms, last week.

The senators also asked the SBA to update applicants on the status of their loans. Many small business owners said they have not heard anything from the agency since they sent in their applications, leaving them wondering if they even qualify for the assistance.

"If SBA is concerned about opening up EIDL due to a lack of funds, the Administration should send Congress a request with a funding level they need to do so," the senators wrote.

This is a developing story. Check startribune.com for updates.

Jeffrey Meitrodt • 612-673-4132

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©2020 the Star Tribune (Minneapolis)

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