SBA is Doing Its Job

Google Alert sends an email every day to anyone who requests it with a list of whatever has appeared on a subject that their crawlers find. For SBA, and almost every day for the last several months there is a story from somewhere about a dramatic increase in SBA lending. One such example is Massachusetts. Since the signing of the Recovery Act, there has been a 93% increase in the dollar volume of SBA loans over the comparable period prior to the Recovery Act. Loans have been made to all kinds of businesses from restaurants to manufacturers and all types of "Main Street" businesses. This kind of story is being repeated all over the country. A total of 1,592 loans have been approved in Massachusetts totaling over $479 million since February of 2009. Wouldn't it be interesting if you could wave a magic wand and know how many jobs those 1,592 loans either saved or will create over the next two years, or, how many of those loans would never have been made without the guarantee?

One of the major complaints over the last two years about the bank bailouts is that the taxpayers are going to pick up huge amounts of losses, and they probably will. But in contrast to those losses, SBA loans make taxpayers money. Here's why. Over the years, a major criticism of SBA loans is that they have higher default rates which, to an extent, is true, but not that much higher than non-SBA commercial loans. Today, that complaint has been turned upside down. It is the non-SBA loans that are generating the big default rates. SBA has a set of credit guidelines similar to a bank. It is more lenient that banks, but not much. So a bank writing a loan expecting to get an SBA guarantee cannot make an overly risky loan because SBA won't guarantee it.

So that being said, assume a 20% default rate for SBA - and it is nowhere even close to that. But we will use it. So if two out of ten loans went bad, eight out of ten did not. Those eight businesses paid taxes and the employees paid personal taxes. Economic value was created. So money paid in to the government (the taxpayers) far exceeded the money lost in the two defaults. SBA makes money for taxpayers.

There could not be a better example of why Congress ought to get off its ______ and make the SBA terms in the Recovery Act permanent, or at least extend it for two or three years while the economy is recovering instead of staggering along and extending it a few months at a time. How much more evidence does Congress need? Banks that are hesitant to make loans to many small businesses - the smaller the business the more hesitant - are showing that they will use the SBA guarantee under the Recovery Act terms if it will enable them to make a small business loan that they might want to make but just aren't quite comfortable with. When that happens, the banks get good loans because of the guarantee and small businesses get credit they need.

So if anyone is going to raise hell against anyone, and banks deserve their share, raise it against Congress. SBA is a creature of Congress because it is Congress that sets their budget and what they can and cannot do. So with all the screaming from Washington about jobs, jobs, jobs, here is a proven tool to increase jobs by getting credit to small businesses that is in place, helping to create financing every day, and that does not require any new Federal or any other kind of agency to be set up. It's like wanting to know what time it is while you are standing there holding a watch and not realizing that you have the answer staring back at you.