At least 10,500 homeowners and business owners based in flood-prone areas impacted by Hurricane Sandy have been approved for $766 million in disaster loans from the U.S. Small Business Administration (SBA).
According to a joint report from WNYC and ProPublica, the SBA requires borrowers to get flood insurance, but does not require that properties be raised to flood-prevention heights recommended by the Federal Emergency Management Agency. Interest rates on the loans are uncommonly generous – homeowners pay as low as 1.7% and business owners as low as 4% – and the loans can be repaid over 30 years.
As of mid-February, the SBA approved more than 21,500 disaster loans worth $1.5 billion for Sandy-related damage, and the agency could approve up to $2.5 billion in disaster loans related to the hurricane. The SBA approves about 52% of applicants, and its largest hurricane-related transaction as of mid-February was a $1.5 million loan to the Fairfield Beach Club, a private beach and tennis club in Connecticut.
The SBA estimates the loans cost taxpayers 11 cents for every dollar loaned out. An agency official defended the lending, stating that it filled a financial services void.
‘It's good government,’ says James Rivera, associate administrator in the SBA's Office of Disaster Assistance. ‘I mean, basically it's what the private sector won't do.’
However, Pete Sepp, executive vice president for the National Taxpayers Union, questions the program.
‘These loans do not come without risk to taxpayers,’ says Sepp. ‘We need to have a policy that carefully considers whether rebuilding in flood-prone areas makes sense and whether such building ought to be encouraged by government or at least abetted by government through the use of aid and loans.’