As the Small Business Administration prepares to loan potentially billions of dollars to victims of Hurricane Katrina, the agency must ensure it maintains proper oversight of the money to avoid problems like those that may have followed the Sept. 11 terrorist attacks. The SBA has said it will do so, but a review of the problems with 9-11 loans will help avoid future problems.

According to an investigation by the Associated Press, many small businesses far from New York City and Washington received loans from the SBA’s Supplementary Terrorism Activity Relief program while businesses close to ground zero did not get the money they asked for. Of the 19,000 loans approved under two Sept. 11 recovery programs, only 11 percent went to companies in New York City or Washington, according to the AP review. While the director of the SBA is right that many businesses far from the cities attacked were harmed by the economic fallout following Sept. 11 and likely deserved help, the numbers uncovered by the AP are troubling.

For example, a hair salon that was flattened by the collapse of the World Trade Center in New York City applied for a $70,000 loan to rebuild. It was given only $20,000. Yet, a special events company in Richmond, Va., got a loan for nearly $1 million and the owner of a Dunkin’ Donuts in western New York got a $350,000 loan to remodel the shop. Unaware of the source of the money, many SBA loan recipients were embarrassed when they learned where it came from.

It appears that one Sept. 11 loan program, the Economic Injury Disaster Loan (EIDL), has a better record than the other, the Supplementary Terrorism Activity Relief (STAR) program. A review by the Government Accountability Office found that those who needed assistance under the EIDL program got it. However, this program accounted for only about $1 billion in government loans after Sept. 11.

The STAR program was larger and more loosely run. It accounted for more than $3.7 billion in loans which were distributed by banks. Because the government guaranteed to pay between 75 and 85 percent of each loan, banks had an incentive to write as many STAR loans as possible. Sen. Olympia Snowe, chair of the Small Business and Entrepreneurship Committee, plans to hold hearings on the 9-11 loan irregularities soon.

While it was important to quickly get money to businesses harmed by the terrorist attacks, the rush, coupled with cuts to the SBA budget, meant that there was little government oversight of participating banks.

This is a situation that must be fixed as similar loans will soon be made to businesses harmed by Hurricane Katrina.