NATION SBA gives terrorism-related loans to businesses not affected by 9/11

Some banks didn't tell borrowers the source of the loans.
COLUMBUS (AP) -- Low-interest loans meant for Sept. 11 recovery helped an airport convenience store and fledgling video producers, but also a dentist and other business owners who said they didn't know they were receiving terrorism-related aid.
"Am I in that program? Nobody told me," said Tom Brower, a former airline pilot who borrowed $917,000 to open a Ritter's Frozen Custard franchise in the suburb of Hilliard.
About $120 million was approved for about 435 Ohio businesses through the $5 billion U.S. Small Business Administration program, although the agency didn't track how many businesses took the money. The SBA set a loose definition of what adversity from 9/11 would qualify a company for the low-interest, lower-fee loans, including disruption of business or difficulty paying bills or securing financing.
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.
Few in NYC or D.C.
Of the 19,000 loans approved by the two programs, fewer than 11 percent 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."
A review by The Associated Press found that many borrowers appear to have little or no connection to the terrorist attacks, including 25 fast-food restaurants, a handful of tanning salons and businesses that didn't open until late 2002.
Several recipients, including a day spa and a bed and breakfast, said they didn't know they had received money meant to speed disaster recovery.
"I just applied for the loan at the bank," said Tom Mayl, who received about $800,000 to open a Subway in suburban Dayton and a Buffalo Wild Wings in Sidney. "I had no idea where the funds came from."
Affected by attacks
Money was approved for several Ohio industries hurt by the recession that followed the attacks: 11 charter flight operators or other air travel companies; 69 in the travel, tourism or ground transportation industry; and 55 manufacturers, from iron foundries to overcoat makers.
The federal government opened up disaster recovery loans to businesses nationwide weeks after the Sept. 11, 2001, terrorist attacks. In that first round, the SBA required applicants to explain in writing how they were harmed.
Congress pumped more money into the program in 2002 and allowed businesses to apply through banks. In memos obtained by The Associated Press, the SBA encouraged banks to seek borrowers for Supplemental Terrorism Activity Relief, or STAR loans.
Banks had incentives to sign borrowers up: The SBA cut lenders' fees in half, a savings of $2,500 on a $1 million loan, and guaranteed paying banks 75 percent to 85 percent of defaulted STAR loans.
Didn't check explanations
The banks were required to put a written explanation of the 9/11 connection in the file, but the SBA didn't check if they did so -- or if they told borrowers they were receiving terrorism recovery money.
"Many lenders may not have discussed the STAR program specifically with the borrower," agency spokeswoman Carol Chastang said. Although the agency is not aware of widespread abuse, she said, it may audit the program.
"I don't recall any requirement that banks tell borrowers which program they were in," said Mary Shancey, a Dayton loan officer for Fifth Third Bancorp who handled a dozen or so 9/11 loans.
She said she discussed the effect of the terror attacks with borrowers, including an entrepreneur buying a struggling sports memorabilia store, because it helped her learn if they qualified.
"Any business I saw, frankly, could have been a STAR loan back in that time period because everyone lost money," Shancey said. "The hurdles weren't that high."
Other lenders -- including San Francisco-based Wells Fargo and Midwest Business Capital of Columbus -- said they complied with government regulations but would not answer specific questions about whether they explained the nature of the terrorism loans to borrowers.
At least one loan file out of three flagged by the AP had no indication it was issued under the program, JPMorgan Chase & amp; Co. spokesman Tom Kelly said without identifying which loan. The company bought Bank One last year, and Kelly said the SBA had audited and approved the earlier Bank One transactions.
Reactions
Government lending projects usually have little justification, said Paul Evans, a finance professor at Ohio State University. It makes sense to lend money to military veterans or businesses hurt when the government shut down airports, he said, but the list of terrorism loans goes beyond that.
"They're lending to anybody and everybody, in addition to what they already do, which is a lot of lending with poor default records," Evans said.
U.S. Rep. Steve Chabot, a Cincinnati Republican who sits on the committee that oversees the SBA, said he would ask the panel to review the program. Congress intended for it to help businesses nationwide, but only those that were hurt directly or indirectly by the attacks.
"It certainly should not go willy-nilly to any business," he said. "When those loans are involved, the parties should be aware that's the type of loan they are receiving."
Dr. Ronald Freeman, a dentist in Ashland, saved $30,000 a year on interest with his new $1.2 million federal loan. He said he was never asked how the Sept. 11 attacks had hurt his business. They hadn't, since eventually everyone needs to get their teeth fixed.
Freeman wasn't upset to learn he'd received a terrorism recovery loan. It helped his practice grow to 13 employees from eight and nearly tripled his revenue.
"It certainly helped the economy, that's for sure," he said.
Pa. recipients
In Pennsylvania, the government approved nearly $111 million worth of loan guarantees and low-interest loans for a motley mix of enterprises, including doughnut shops, a bowling alley, an exercise gym, a flour mill and a tree nursery.
A $1.5 million SBA loan guarantee helped Vasant Patel buy three Dunkin' Donuts shops in Reading while Bill Reese got a $997,000 federally backed loan to buy a bowling alley near Allentown. The owners of a Thorndale gym and Pennsburg-based tree nursery said they used the money to expand their businesses and refinance existing loans.
As in Ohio, many borrowers did not seem to know their loans came from the program.
"Whatever the banker told us, that's what we did," said Anuraag Mullick, part owner and general manager of the Days Inn hotel in Meadville, 85 miles north of Pittsburgh.
Loose guidelines