updated 10/17/2005 4:35:37 PM ET 2005-10-17T20:35:37

Roughly $1 of every $5 in loans the Small Business Administration directly made to companies hurt by the Sept. 11 attacks has fallen into default, leaving the government with an uphill effort to recover millions of dollars in taxpayer money.

The agency is just now learning about the magnitude of businesses that went under or stopped making payments. Its Sept. 11 direct disaster loan program often gave recipients two years before their first payments were due, according to documents reviewed by The Associated Press.

The SBA directly lent $1.2 billion to more than 10,000 companies that made specific arguments about how their businesses were hurt by the suicide hijackings in 2001 that destroyed the World Trade Center in New York and damaged the Pentagon in suburban Washington. A plane bound for Washington crashed in rural Pennsylvania.

Of that amount, $245 million is in default, the records show. The SBA investigators consider a loan in default if it has been charged off or liquidated or is more than 60 days delinquent.

SBA officials say they have written off less than $10 million of the default total and will make strong efforts to recover much of the rest of the money by collecting collateral, negotiating settlements with borrowers, or bringing delinquent loans up to date.

The $245 million “does not represent the actual loss to the government, which, because of settlements and recoveries on collateral, will be less than this amount,” SBA spokesman Michael Stamler said.

Among the loans already written off, taxpayers are picking up the tab for a $992,000 loan made to an Atlanta hotel; $986,000 to a Florida boat dealer; $620,000 to a Maine broccoli farm; and $38,900 to a Lubbock, Texas, computer store.

Even some who are making their payments are concerned about their recovery.

“Business just isn’t doing as well as it was in the past,” said Winnie Mou, owner of Manhattan Travel Inc., located about a mile from the World Trade Center site. Her company began paying back its $11,600 loan last year.

Rep. Nydia Velazquez, who represents New York City and is the top Democrat on the House Small Business Committee, wants the SBA to extend the period of time before companies are required to make loan payments, hoping to ease the burden.

“A lot of these companies are just beginning to have to pay back their loans,” said Velazquez. “What is the government going to tell them when they can’t?”

A second SBA-backed Sept. 11 program, which guaranteed loans made by banks to businesses across the country more broadly hurt by the economic downturn, has a much smaller default rate, records show.

Of the $3.7 billion lent by the Supplemental Terrorist Activity Relief program, only $191 million has been charged off or liquidated or become 60 days overdue. That’s a 5 percent default, compared to 20 percent for the SBA’s direct lending program.

Historically, other government disaster lending programs have written off about 5 percent of loans. The largest SBA write-off in the last quarter-century came in the wake of the 1992 Los Angeles riots, when taxpayers absorbed $122 million of $356 million in loans, slightly more than a third.

The SBA loan programs received increased scrutiny from Congress and elsewhere after an AP story in September disclosed that some companies with Sept. 11 relief loans from banks under the STAR program weren’t harmed by the attacks and didn’t even know their money was being drawn from the program.

AP also reported that some businesses far removed from New York and Washington — like a Utah dog boutique and a Virgin Islands perfume bar — got loans directly from the SBA while businesses closer to the World Trade Center were either turned down or unaware of the aid.

The SBA says that while some loans might have been made in haste, the agency is vigorously prosecuting people who obtained tax dollars or loan guarantees under false pretenses.

In June, for example, a former New York attorney pleaded guilty to one count of wire fraud and one count of money laundering after receiving a $247,000 SBA loan. The attorney claimed his offices at 40 Wall Street were damaged by the Sept. 11 attacks and the firm lost clients as a result.

A joint investigation with the IRS found that the firm’s offices had never been located at that address.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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