Dale King, who runs a one-man towing service in Gaithersburg, had a terrible season the winter before last. There wasn't much snow and there weren't many cars with dead batteries that needed towing.

"The winter was so mild that it didn't do me any good at all," the 28-year-old truck driver said. "My credit standing went bad and I almost went broke."

But the federal government came to King's rescue in the form of a little-known program at the Small Business Administration. King was declared the victim of an "economic dislocation" and was given a $40,000 loan at low interest to help keep him solvent until colder weather returned.

When hurricanes, floods and earthquakes strike, SBA frequently comes to the rescue with more than $2 billion a year in high-visibility disaster aid. But few people know that over the last three years, SBA also has handed out millions of dollars in low-interest loans to companies for enduring such "nonphysical" disasters as a poor fishing season, the closing of a bridge, a depressed copper market, a slump in tourism, even for suffering from bad publicity. .

Small businessmen become eligible when the SBA declares that enough of them have been seriously injured by a temporary economic development that they could not have been expected to foresee. The low interest rates, now about 9 percent, amount to a substantial federal subsidy for these recipients, who generally are given 7 to 30 years to repay these loans. About 9 percent of the borrowers are either delinquent in their payments or have been given more time to repay.

Under pressure from the Reagan administration, however, Congress has now consolidated most of these nonphysical disaster programs and has failed to vote them any money for next year. The programs will be allowed to lapse after their $10-million reserve fund runs out, although Congress has kept them on the books so they can be revived when the economy -- or the political climate -- warms up again.

From just $4 million in 1979, this relatively obscure portion of the SBA loan program grew to $56 million last year, a phenomenon that tells a good deal about how government programs can be stretched in unforeseen directions once the financial floodgates are opened.


After the long gasoline lines faded in the summer of 1979, tourism took a sharp dip around the country, and dozens of struggling restaurants, motels and gas stations asked the SBA for help. But there was no tangible disaster to declare, so SBA came up with a new wrinkle: businesses from Gettysburg to the Grand Tetons would now be entitled to aid not because there was a gasoline shortage, but because there was a "public perception" of a shortage.

In 1979, state health officials shut down Virginia's Back River after an overflow in the local sanitation plant poured raw sewage into the river and contaminated the fish. Although the river has been closed several times in recent years, the watermen who dredge for oysters there persuaded Virginia Gov. John N. Dalton to ask the SBA for help. The agency rejected his request, saying the watermen hadn't suffered enough economic damage.

"It looked like it was meant for me to go down the tubes," said Larry Perok, the president of Back River Sea Food, which later got a $100,000 loan. "We was gone on paper. I had my personal money running the show. I had to lay off 27 people. And then the SBA rejected us and said we were a bunch of damn liars."

But Dalton and other state politcians eventually convinced SBA to declare a disaster in the small fishing village of Poquoson, even though the river had been reopened after several weeks and oysters were once again plentiful.

After the mild winter of 1979-80, when SBA provided loans to snow-related businesses in 13 northern states, ski shops throughout Maryland pressured Gov. Harry Hughes to seek the same aid. "SBA's initial reaction was no, Maryland didn't have enough of a ski industry, it wasn't like Vermont," said Len Elenowitz, a state official. "But these ski shops were getting creamed. Their entire industry is related to a season, just like Ocean City."

SBA officials finally granted Hughes' request, although they rejected a similar appeal from Virginia. The agency began giving $100,000 loans to people like Art Cerasani, the owner of Ski Haus in Annapolis, who was stuck with a vast inventory of ski equipment.

"Our business comes from people who go skiing in Pennsylvania and New England," he said. "If they had no place to go skiing, we're hurt just as bad as those states."

When thousands of Cuban refugees washed ashore in Florida last year and were placed in camps near Key West, tourists started staying away in droves. SBA agreed to make loans to charter boats, gift shops, restaurants, even to a couple who rent out hot tubs on private patios surrounded by stereo music and lush greenery.

When Mexico devalued its peso, small merchants along the border in Texas and Arizona got federal loans. When the nuclear plant at Three Mile Island was shut down, companies near Harrisburg, Pa., got federal loans. When a bridge in Bristol County, Mass., was closed after an accident, the stores on the other side of the river got federal loans. And when there was an earthslide in Malibu and California's Route 1 had to be closed, the merchants along the highway got federal loans.

In 1978, the Consumer Product Safety Commission adopted a minimum flammability standard for cellulose insulation, which was being widely criticized as a fire hazard. CPSC officials said many small businessmen were making a dangerous product, and that many would have gone bankrupt in any case because the market demand was shrinking.

The industry quickly sought relief from the SBA, which declared a disaster based on the "adverse publicity" surrounding the CPSC's action. Bill McKenzie, director of the Cellulose Manufactuers Association, acknowledges it wasn't the CPSC's standard that drove many of these firms out of business. "I do feel these loans are a bailout, sure," he said, "and I was against bailing out Chrysler and Lockheed. But we were the victims of an unfair publicity campaign brought on by government actions, and these were kind of the reparations for that campaign."

Under the other sections of the nonphysical disaster program, businesses can get SBA loans if they are displaced by a highway, if a military base in their area is shut down or if the product they are making turns out to be dangerous. Defense contractors are eligible if they are building weapons that are banned under a strategic arms treaty, while factories can get loans if the government forces them to meet new health and safety standards.

The Reagan administration recently decided it could not defend a special safety net for the nation's small businessmen. "The dislocation program was written in such broad general terms that it could be applied almost anywhere," said Bernard Kulik, SBA's deputy associate administrator. "It was hard for us to draw the line.

"We got a lot of people stuck in things like lack of snow, which is a disaster to a guy with a ski lodge. But should the government guarantee there's going to be snow every year? How about the guy who makes down jackets -- should he be eligible? I tend to think these things are a normal business risk."

Perhaps the program's most unlikely disaster site is Mashpee, Mass., a pleasant resort town on Cape Cod where a group of Indian tribes claimed title to nearly all the land. Their lawsuit placed every homeowner's title in legal limbo and prompted the town's banks to stop making mortgage and construction loans.

Though Mashpee is filled with $100,000 vacation homes, SBA officials started making disaster loans to local businessmen like Dan Paliuca, the owner of a local seafood restaurant that was burned down after the Mashpee Indians held a meeting there.

Paliuca is angry at SBA for limiting his loan to just $30,000, but he expects President Reagan to do something about it. "I'm a backer of Reagan all the way," he said, apparently unaware that the president has just abolished the program that saved his business. "I really believe in what he is doing. But he should take a hard look at the problems of the small businessman today."