Small Business Lending: grade “P” for pathetic

“Few Banks Seek Funds For Small Businesses” was the headline of an article on page C1 of last Thursday’s Wall Street Journal (3/31/2011). 

Some banks reached for comment said there was little demand for loans.  Some small business owners reached for comment begged to differ. 

I don’t know whose fault it is – Congress, the SBA, an Obama advisor, the President himself – but their performance at helping small business has been pathetic.  With a capital P. 

What gets announced with great fanfare (we’re setting aside $30 billion to revive small business lending!) languishes in complexity and red tape (if you increase small business lending by 10% the interest rate we charge you is 1%.  If you increase lending by just 2.5%, the rate is 5%.  Now here are the forms to fill out each month so we can track your level of small business lending).

Community banks had applied for $7.6 billion of the total as of the deadline Thursday, so the Treasury department is extending the deadline until May 16, 2011.  The program is the centerpiece of September’s Small Business Jobs Act, according to the WSJ. 

One of the mistakes policy-makers make over and over again is to equate small banks with small business lending.  Actually, it’s the large banks that do a better job of making funds available to entrepreneurs.   They do it through credit cards and home equity lines.  Some might even be considered sub-prime because most struggling entrepreneurs are unbankable.  We are the un-touchables in a caste system of capital allocation.  We smile and pay the 24% annual interest rate because we can’t get credit anywhere else.  If we can just keep the doors open another month, we will change the world.  But bankers get all worked up if they see that you actually need money, or that you have taken risks.  Sorry – but I believe “risk-taking” is part of the job description for an entrepreneur. 

And now they are tinkering with that precious source of small business capital in the name of consumer protection.  I think I’ll move to Amsterdam and open a coffee shop. 

OK  – that’s the Treasury department.  How about the SBA?  Shoot, if the federal government can subsidize the automakers to the tune of $7,500 per car to make electric vehicles, or ethanol producers 50 cents a gallon to disrupt the grain markets and make it look like we are doing something about the energy problem – surely the federal agency tasked with helping small business must be a wellspring of help and hope for their small business constituency. 

First, the report card for Treasury and the SBA Combined – the article included a chart of Total Outstanding Small Business Loans for 2008 to 2010, sourced from the Small Business Administration’s Office of Advocacy, March 2011. 

2008    $712 Billion

2009    $695 Billion

2010    $652 Billion 

That only confirms my suspicions, my own experience, and the stories from a multitude of small business owners who sometimes have to scramble to survive.  New lending ain’t happening.  Just the opposite – debt is being paid back.  If recent trends continue, small businesses will be lending the banks money in about 15 years. I give the federal government a grade of “P” – not for “Passing” but for “Pathetic.” 

With all the money the federal government is spending on other things that perhaps have lobbyists – (I live among these people near Washington, D.C.  I can see what goes on.) – they can’t find a way to spend any of it in a way that actually helps small businesses survive and thrive?! 

Rather they’re putting up barriers to make it tougher on us.  It’s because we don’t have a voice, and they don’t have anyone writing or implementing the laws who have a clue about what it means to be an entrepreneur.  Shame on them!

 Back to the fund: the WSJ says “Detractors of the fund say some banks are applying for money to refinance outstanding government debt rather than to boost their small-business lending.”   Unintended consequence?  Or maybe not?

Here’s the link to the WSJ article


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