Small Business Aid: Why The Stimulus Package Doesn’t Work

The Small Business Administration runs a stimulus program for the government that provides up to $225 million for modest American enterprises. According to The New York Times, this pool is meant to make about 10,000 loans of up to $35,000. The paper claims that to date only 1,127 loans for a total of $38.6 million have been granted. That in a teacup is what is wrong with the overall stimulus policy. As part of their stimulus program, the Chinese would be inclined to simply have these same small companies come to a government office and take the money in cash in exchange for an IOU. That may be why, by all accounts, their $585 billion program is working better than the $787 billion one here.

US government officials believe that the SBA program is not working as well as it might because banks do not have much incentive to act as the loan middleman. The amounts are small and because the federal system is involved there are reams of paperwork.

The management at the SBA has come up with a clever defense of the gridlocked program. “We like the fact, actually, that they will be spread out over time,” said Karen G. Mills, head of the Small Business Administration. “We have no doubt that we will make 10,000 loans,” the Times reports.

The process of shocking the heart back into rhythm when it has stopped beating is not a long and meticulous one. The patient dies if it is. Resuscitating an arrested heart requires pressing on the chest to the point of breaking ribs, but that is often the only way that it works. The fact that the head of the SBA would make such a ludicrous statement should shake every small business owner to his core. Money will be available for life-saving loans long after the companies that need them go out of business.

The most widely-heard criticism of the bailout of the American banking system is that taxpayers have nothing to show for it other than warrants issued by the financial firms themselves as a sort of compensation for the government’s risk of putting capital into investments that could have failed. The average citizen wants to understand what happened to the quid pro quo. That would include a reasonable interest rate on a credit card, a car loan, or a reasonable chance for a legitimate small business to salvage itself and the jobs of its employees in the midst of a deep recession. The government would say that it has to be careful that the SBA program does not end up as cesspool of fraudulent loans that were made without adequate due diligence. Banks would say that the loans are not worth their time.

The cases made by banks that they cannot afford to handle government lending for mortgage modifications, small business loans, and special programs for college students and continuing education may be entirely right. The Administration may not feel comfortable asking banks that it saved to provide funds to enterprises where they could lose money. There is nothing unreasonable about that. What is inappropriate is to avoid the issue of how banks can be given a reasonable incentive to do the government’s work because the government has the capital but not the tools to carry out programs which are essential to the economic recovery.

Economic historians may look back on 2009 as a period when the American government had the check book to solve many of the nation’s financial problems, but could not find a pen to write the checks.

Douglas A. McIntyre