Video: How are NOLA small businesses faring?

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updated 2/14/2007 8:48:52 PM ET 2007-02-15T01:48:52

There was nothing left of Donna and Matt Colosino's electrical equipment business after the levees broke. The building that housed their company, Crescent Power Systems, in the Lakeview neighborhood of New Orleans was flooded under 12 feet of water that swept away everything they had worked to build over the 13 years before.

"It destroyed everything," says Donna Colosino, "every single, solitary thing."

They quickly applied for a loan from the Small Business Administration (SBA), and, they say, descended into a nightmarish thicket of bureaucracy and incompetence.

"It was agonizing," says Donna. "It was — frustrating isn't the right word — it was horrific."

In the last 15 months, they say the frustrations have run the gamut: receiving documents from the SBA riddled with errors, resubmitting the same paperwork over a dozen times because it got lost, and being bounced from loan officer to loan officer — more than 20 in total — each equally unfamiliar with the Colosinos' case.

At one point last year, they were notified their loan had finally been approved, but instead of getting $250,000, as approved, they received only $10,000. So they had to start the process all over again. For Donna, who earned both her undergraduate degree and MBA in New Orleans, and Matt, who has lived in the city since he was 2 years old, the process has been tough to bear, but its effects have been even tougher to witness.

"This is why my city's not going to get better," says Donna. "This is why rats are crawling on the telephone lines in the neighborhood where we had our business that was beautiful."

On Wednesday, Steven Preston, the head of the SBA, told the House Small Business Committee that there have been problems, but that the SBA has taken steps to correct them. He testified that 73 percent of approved loan money now has been sent out.

"When we look at our backlogs and we look at our timelines, we are for the most part being very responsive to those people," Preston testified.

Preston points out that the agency was overwhelmed in the wake of Hurricane Katrina, receiving more than 420,000 loan applications and approving $10 billion in loans. According to Preston, this surge in demand left the SBA struggling to meet the needs of thousands of disaster victims in a timely fashion, a problem that he says has now been corrected by the reduction of backlogs and the elimination of procedural bottlenecks. According to the agency, it has since been able to approve 45 percent of all loan applications.

"Things have changed very very dramatically," says Preston. "The numbers show it, the responses we're getting from individuals show it."

Preston told NBC News he was unable to comment on the Colosinos' case specifically. He did not remain at the hearing during their testimony.

For the Colosinos, the little money that did come came too late.

"We liquidated our own savings," Donna testified Wednesday. "We had to sell our house eventually. Had we been able to receive our loan in a more timely fashion, we wouldn't have had to do that."

She challenged the SBA's assertion that the agency has corrected any procedural obstacles, and pleaded for the House committee to take action on behalf of the hundreds of other small-business owners she claims have had similar experiences.

"Don't assume at any chance I'm just here to get my $250,000," she testified. "That would be wonderful, but there are tens of thousands of people standing behind me that just have a different name, but the same face, and the same song."

The House Small Business Committee's majority staff released figures disputing the SBA' s claim that 73 percent of approved loan money has been paid. The committee includes the 41,211 approved loan requests later withdrawn by applicants in calculating that only 45 percent of money has been paid. The committee staff and the witnesses at its hearing today on the topic suggested many of the applicants who cancelled approved requests did so out of frustration with the process. And while 19,527 approved loan requests had received partial funds, only 60 percent of 160,084 approved loan requests — 96,538 — had been fully funded since the hurricanes struck the Gulf Coast in August and September 2005.

Rep. Nydia M. Velazquez, D-N.Y., chairwoman of the House Small Business Committee, tells NBC News that more should have been expected of the SBA in the wake of the 2005 Gulf Coast hurricanes.

"The federal government has failed the victims," says Velazquez. "These people continue to be victims; they have been victimized one more time by the system that was supposed to be in place to help them."

Also released Wednesay, a Government Accountability Office (GAO) report on the results of its investigation, requested by the House Small Business Committee, into how prepared the SBA was to handle disaster relief loan applications in the wake of the 2005 hurricanes. The GAO found "several significant system and logistical challenges" that prevented the SBA from responding to hurricane victims in a timely manner.

With the next hurricane season only months away, Velazquez worries about what the future might bring.

"After reading the (GAO) report," she tells NBC news, "I can tell you that the Small Business Administration is not ready yet to provide a comprehensive relief effort if we are hit again by another disaster of this magnitude."

The Colosinos say the SBA seems more efficient at trying to collect loan payments. Last month, the agency notified the Colosinos that a payment of $902 is due in May — their first payment on the full amount of the loan, the loan they have not received.

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