Sept. 11 Loan Program Under Scrutiny As relief money begins to flow into areas hit by Hurricane Katrina, questions are raised about a $5 billion small business loan program set up after the Sept. 11 attacks. As first reported by the Associated Press, nearly 90 percent of the money went to companies outside New York and Washington, D.C. That left some businesses near Ground Zero scratching their heads.
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Sept. 11 Loan Program Under Scrutiny

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Sept. 11 Loan Program Under Scrutiny

Sept. 11 Loan Program Under Scrutiny

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As government relief begins to flow into areas affected by Hurricane Katrina, there are new questions about a $5 billion loan program set up after the September 11th attacks. Nearly 90 percent of the money went to companies outside New York and Washington. From New York, NPR's Luke Burbank reports.

LUKE BURBANK reporting:

Like just about every American, Daniella Stout(ph) can remember exactly where she was when she first heard about the September 11th attacks. She was lying in bed and her radio alarm clock had just gone off.

Ms. DANIELLA STOUT: And it was a country music station, so I thought they were kidding, and then when I turned on the news and I saw that the towers were on fire, I was just flabbergasted.

BURBANK: Stout lives in El Cajon, California. So Stout could have never expected that the events of that Tuesday morning would play a role a year later when she decided to follow her dream and open her own store, Cozy Quilts Shop(ph). She started by getting what she thought was a typical small-business loan for a hundred thousand dollars through a program run by the Small Business Administration.

Ms. STOUT: We never knew anything about a 9/11 relief program. We were applying for a brand-new business through the SBA, had no idea there's be any connection nor did we intend to have any connection with 9/11.

BURBANK: But hundreds and maybe thousands of companies like Cozy Quilts were granted loans as part of a government-run 9/11 relief program. That's according to documents uncovered by the Associated Press and first reported earlier this month. With billions of dollars to go around, many businesses with legitimate 9/11 claims got the money but so did just about everyone else: a karaoke shop in Seattle, a Denver liquor store and more than a hundred Dunkin' Donuts and the list goes on.

Mr. RAUL CISNEROS (Spokesman, Small Business Administration): We're very confident that we ran the program as Congress mandated.

BURBANK: Raul Cisneros is spokesman for the Small Business Administration which ran the loan program, a program Congress says it soon plans to investigate.

Mr. CISNEROS: The fact is is that there were small businesses beyond the World Trade Center area that were directly impacted.

BURBANK: Here's how it worked. Businesses that were affected by 9/11 were eligible for two types of relief: low interest loans that came directly from the government and market rate loans from banks, loans guaranteed by the US government. Because these STAR loans, as they were called, had government backing, businesses were able to borrow money they might not have otherwise qualified for. Raul Cisneros of the SBA says owners did have to prove they were affected by 9/11, but then how did someone from Tacoma, Washington, get $1.2 million to buy a bowling alley?

Mr. CISNEROS: That's a question that also the bank can help to answer.

Ms. MARIA COYNE (Key Bank): It wasn't that we were secretly trying to, you know, make use of a fund for something that it wasn't intended for.

BURBANK: Maria Coyne runs the small business loan division of Key Bank, the company that made the bowling alley loan. She says her employees were in constant communication with representatives from the SBA who implored bank staffers to give out the STAR loans.

Ms. COYNE: They were outright encouraging us, `Use this money. This will, you know, kind of only help. You know, let's make use of this money.'

BURBANK: Lenders say there was a use it or lose it mentality at the SBA because the more money the agency loaned out, the more it stood to get from Congress. That's been changed and the SBA is now less dependent on appropriations, but still, there's the question of the many borrowers who say they never even knew the origins of their STAR loans, people like Vern Isaacson(ph), the man who bought that Tacoma bowling alley.

Did you have any idea that the money that funded your loan came out of a program designed to do 9/11 disaster relief?


BURBANK: Mike Ugadia(ph) is at the other end of the spectrum. His barbershop, located across the street from ground zero, was closed for two and a half years. The SBA offered him $20,000 but he says he actually needed $70,000.

Mr. MIKE UGADIA: I need help. I need money. I mean, if they could give me a loan, I could use it.

BURBANK: But they can't. The 9/11 loan programs have long since ended, and the Small Business Administration is now focusing on its next project: emergency relief for businesses who say they've been affected by Hurricane Katrina.

Luke Burbank, NPR News, New York.

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