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Republicans and the SBA


Republicans and the SBA

It is often said that politics and religion should never be discussed at a bar.  The same goes for business – never mix business with politics and religion.  That said, I’m going to break the rule and discuss conservatives, the SBA, or the Small Business Administration, and the ridiculous reasons why conservatives do not like the SBA.  And yes, in case you are wondering, I’m a Democrat.

The underlying premise of the conservative argument against the SBA is that it is not necessary because if a loan is sound, a financial institution will make the loan anyway.  This is patently false because what the SBA does under their 7(a) program is to guarantee loans based upon cash flow only; that is, so long as the business has adequate cash slow to service the debt plus a safety cushion, the SBA will guarantee the loan.  Under conventional lending standards, or lending without the SBA guarantee, a loan must be fully collateralized. This places a much greater burden on small business borrowers and would greatly reduce lending to small businesses but for the SBA.

In a 2011 article entitled “Waste, Fraud, and Abuse in Small Business Administration Programs”, Ted DeHaven of the Cato Institute makes the preposterous claim that because the SBA guarantees loans, banks are more willing to take risks.  This is of course absurd since if banks make too many SBA guaranteed loans that fail to perform, the SBA revokes their SBA lending authority. For those of you who have never travelled to Conservative Land and who like oxymorons, the Cato Institute is a “conservative think tank”. Remember, an oxymoron are two or more words that do not make sense when combined, like conservative and think, or high class hooker. The seven-page article has 21 footnotes, in order, I suppose, to create the appearance of legitimate academic research.  As is the case with most conservative arguments, the article is a cornucopia of half truths, untruths, and dumbed down versions of truth.

And so, do SBA guaranteed loans have a higher failure rate than loans made under conventional lending standards? Yes, slightly but insignificantly. The important point is that although the SBA might have had its problems over the years, it is an invaluable capital resource for both budding and established entrepreneurs.

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