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Welch to push for small business micro-loans

Says Vermont businesses in need struggle under one-size-fits-all procedures

BRATTLEBORO—U.S. Peter Welch, D-Vt., announced on Monday that he has written the U.S. Small Business Administration (SBA), requesting it “right-size” its loan programs.

Based on stories gathered from constituents, Welch wrote SBA Administrator Karen G. Mills to request that her agency develop a micro-loan category within the SBA’s disaster relief program to help small business owners.

Welch heard from Vermont business owners during his Irene listening tours who told him that the federal disaster relief programs did not meet their needs.

In Windham County, Welch visited North Star Bowling in Wilmington and WW Building Supply in Newfane.

Both of WW’s Wilmington locations, on Route 100 and Route 9, were hit by Irene floodwaters. The Route 9 location will likely never reopen, a store employee told Welch. The Newfane store also suffered some flood damage.

According to Welch, after Tropical Storm Irene swept through Vermont on Aug. 28, 2011, the SBA distributed more than 1,900 business disaster loan applications.

Only 234 businesses submitted a completed application, of which only 137 loans were approved.

Welch’s proposal to Mills asked for a lending option to provide smaller loans for businesses with fewer than 50 employees. These loans would also require less paperwork than SBA loans aimed at large corporations and have a faster turnaround.

“Many of our small businesses were besieged in the aftermath of the storm,” wrote Welch in his letter. “Employees were working around the clock with a monumental clean-up task. They simply were unable to simultaneously compile the paperwork required to apply for a SBA disaster loan.”

“In some cases, the required three years of financial history had just been washed down the river,” he continued. “Others did not have the systems in place to access information in time to meet the deadline. The documentation required for a loan was simply too onerous for too many damaged and distressed small businesses."

In a phone interview, Welch said cash flow poses the critical challenge to small businesses reopening their doors. The longer these small shops remain shuttered after a disaster, the less likely they will get back on their feet.

Welch complimented the SBA for the helping hand it extended to Vermonters’ businesses after Irene. But only large corporations have enough hands to assign an accountant, or nine, just to complete SBA paperwork.

After a disaster at a small business, everyone who can hold a shovel digs out the basement, he said.

“The goal is to bring the Vermont experience to the SBA administration,” said Welch.

He likens the ideal outcome of a “practical benefit” to how the Vermont Economic Development Authority (VEDA) loan program operated after Irene. Most applicants experienced a turnaround of days. In contrast, most business owners told Welch that they abandoned the SBA process out of frustration.

At a June community meeting in Brattleboro with the Vermont Agency of Commerce and Community Development’s Department of Economic, Housing and Community Development (DEHCD) about HUD disaster funds, local business owners said loans didn’t help them.

Elissa Bhanti, owner of Adivasi on Flat Street, said in June that businesses needed “an injection” of capital other than loans. After Irene, the SBA offered Bhanti loans contingent on placing a lien on her house. With two children nearing college, Bhanti couldn’t afford the risk and turned the loan down.

Peter Pardoe, owner of the Flat Street Pub, operates the upstairs half of his business since Irene flooded the basement restaurant. He used a $100,000 loan from the Vermont Economic Development Authority to rebuild the kitchen, walk-in cooler, and upstairs beer cooler.

FEMA, which does not include businesses in its disaster response, redirected the business owner to SBA.

He said he needs another $70,000 to reconstruct the downstairs restaurant. Pardoe also declined a lien on his house for an SBA loan.

Welch said that the potential micro-loan program wouldn’t help businesses looking for grants.

“There’s no escaping the harsh reality... that hardship comes with disasters,” Welch said.

Welch said he will likely meet with Mills in the coming weeks, adding the administrator is cooperative.

He doubts a new micro-loan program would need Congress’ approval. Instead, the SBA can opt to create the category within their existing lending programs, he said.

Congress created the SBA in 1953 to assist small businesses and entrepreneur with programs like lending, contracts, and business counseling. The SBA offers other micro-loans through some of its non-disaster relief programs.

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Originally published in The Commons issue #160 (Wednesday, July 11, 2012).

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