Counselor felt wrath of Katrina
SBA doing its best to aid shattered firms
 

Worcester — When he got back home, John E. Rainey [photo right] slept for three days.

The air mattress on the floor of the Christian Family Worship Center, where he stayed for two weeks, was uncomfortable, he said. Getting back to his own bed was a relief. So, too, was the respite from sad stories.

“I deal with a lot of companies in financial difficulties. It’s very emotional,” said Mr. Rainey, senior management counselor with the Small Business Development Center at Clark University, which provides business counseling and assistance with financing. But in Mississippi, where Mr. Rainey volunteered as a counselor for the U.S. Small Business Administration after Hurricane Katrina hit, “everyone was in that kind of situation,” he said. “We were physically and emotionally exhausted,” said Mr. Rainey.

Mr. Rainey and five other counselors from SBDCs in Nebraska, Florida, Tennessee, New Mexico and Arizona volunteered to help in Hattiesburg, Miss., from Sept. 26 to Oct. 8. They counseled business owners at the city’s Lake Terrace Convention Center and in the close-knit communities around Hattiesburg — Petal, Summit, Collins, Waynesboro, Prentiss. At night, they slept in cubicles at a church in Columbia.

Mr. Rainey and the others responded to a call from the SBDC, which is a partner of the SBA, for volunteers to help with loan processing when the SBA became overwhelmed by people and businesses seeking disaster-relief loans after Hurricane Katrina.

Before they got to Hattiesburg, he said, about 300 people had showed up at the convention center, where only two SBA counselors were available. “There were so many people, they ran a classroom, explained the forms and sent them away with the forms,” he said. When the SBDC team arrived, they called people and asked them to return for appointments. Chambers of commerce in the towns outside Hattiesburg, which is 70 miles north of the Gulf Coast, also helped set up meetings.

While in Hattiesburg, the team counseled 120 to 150 business owners. Some had lost everything, including loved ones. Mr. Rainey met a person whose mother and aunt were among those killed on the bus of elderly evacuees that caught fire on a highway outside of Dallas while en route from Houston.

Others suffered from the consequences of widespread destruction: power and telephone outages that caused them to shut down businesses, and the likelihood of sales ebbing or evaporating as customers were scattered or spent what they had on home repairs.

“It was survival counseling,” he said. “It was, how do we get them back in business, restabilized and restarted?”

Their first task was to listen to victims’ stories, then spend another hour or more talking about the loan package. A lot of people weren’t covered by insurance, and even those with insurance weren’t sure what they were covered for, said Mr. Rainey.

The SBA has two kinds of disaster loans. Physical disaster loans provide funds to repair or replace business property for uninsured losses up to $1.5 million. Economic injury disaster loans provide up to $1.5 million in working capital to businesses that suffer economic injury as a result of the disaster.

One of the first business owners Mr. Rainey counseled needed both. Inundated by 9 feet of water, her medical clinic on the Gulf Coast had been open just eight months before Katrina hit, a startup without the three years of tax returns and financial history that SBA loan documentation required. The doctors were gone, she had no flood insurance and she needed to get contractors in.

She also has existing debt — SBA loans would add to that burden — and had lost any documents she did have.

Mr. Rainey estimated it would be six months before she could reopen and perform at a level like a startup.

A dentist sought help with an application for an economic injury loan. The only physical damage to his part-time practice, open only a week before the hurricane hit, was a sign ripped from the building. But he had to shut down for several weeks because he had lost power and telephone service. Also, the bulk of his income derived from dental services he provided to a larger practice in Louisiana, which was destroyed.

“We think it would take a year to rebuild both the practice and the subcontracting,” said Mr. Rainey.

By the time Mr. Rainey left, both business owners were still working on their applications.

Others seeking help included the owners of a canoe company whose livelihood was wiped out when the creek on which customers paddled clogged with storm-dropped trees and debris; a retailer whose key back-to-school sales were lost; and a dairy farm with milk spoiled by a weeklong power failure and deliveries that couldn’t be made to a processor.

The processor stepped in with a bridge loan for the farmers who were hurt; Mr. Rainey and a credit manager at a local bank helped rewrite the terms to be less restrictive on the small dairy farmers.

When glasses were “forgotten” or not quite right for reading three- to four-page loan applications, he said, they knew people were likely illiterate, and they helped fill in paperwork.

A lot were cash businesses. “Some backed away when they learned they needed tax records and sales receipts,” he said.

Mr. Rainey said the region was “relatively poor,” with little or no apparent manufacturing base. The backbone of the economy seemed to be small business. “That was how they were surviving. The only big business was Wal-Mart,” he said.

The greatest challenge, Mr. Rainey said, was helping people to overcome their fear of the loan process.

“We tried to make sure people were not intimidated by the process,” he said. “They saw the package and got scared. Once we walked them through it, they were more comfortable. But we won’t know if they come back.”

Mr. Rainey’s experience offers a tiny window from which to see the enormity of the SBA’s task and a perspective from which to defend the agency against critics who say it has been too slow in processing business disaster loans.

After Hurricane Charley, the SBA received 27,000 business referrals for loan applications, said Carol A. Chastang, a spokeswoman for the SBA in Washington, D.C. After Katrina, there were 235,000 business referrals. So far, the SBA has received 14,000 applications for the two types of business disaster loans it offers; 105 loans totaling $5 million have been approved.

“The sheer magnitude of this disaster has made it a bit more challenging in terms of processing loans,” she said.

Unlike Charley, when people were able to more quickly return to businesses, the loss of infrastructure in Katrina and flood waters that only recently receded have slowed damage assessment, she said.

Also, many business owners had to relocate.

“Owners in different states have to have someone there by proxy to OK the damage assessment by the SBA inspector,” said Ms. Chastang. “The damage assessment portion of the application is vital, in that if we cannot make a determination how bad the damage was and how much the owner will need, we cannot process the loan.”

Other complicating factors: people who apply and must complete paperwork but cannot be reached; and people who apply but, for whatever reason, don’t follow through or worry about the additional debt. “We are not doing a business owner a favor if we give a loan they cannot repay,” said Ms. Chastang.

The SBA has beefed up its work force in the region. Where it had 880 disaster employees, it now has 3,429, she said, adding that “we are hiring every day.”

Also, in the past two weeks, the SBA announced it was relaxing some loan documentation requirements and speeding up the processing of loans under $100,000.

Back behind his desk in Worcester, a world away from Hattiesburg, Mr. Rainey said he expects to hear from the business owners he counseled who had the tougher problems.

“I hope to. But I may or may not,” he said.

From Worcester Telegram & Gazette (October 23, 2005)
By Andi Esposito, Business Editor
 

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