The Washington Post’s Kimberly Kandy has a great piece on the agonizingly inane small business loan program that was attached to the federal stimulus bill. Typically, the Small Business Administration guarantees to banks that make small business loans 75 percent of that loan. Typically, about 10 percent of the participating small businesses default on the loan.

The stimulus bill, though upped the ante by including $255 million for SBA to 100 percent guarantee bank loans to small businesses. So far 60 percent of the participating small businesses have defaulted on their loans. Kandy explains how these extremely costly small business bailouts made the stimulus bill:

Just how $255 million in federal funds was set aside for the program — called American Recovery Capital — is a classic Washington story.

When Congress negotiated the final details of the American Recovery and Reinvestment Act, Democrats needed to secure a few key votes from Republican colleagues for the stimulus bill to pass. This allowed Sen. Olympia J. Snowe (R-Maine) to ask for a few concessions — including a loan program aimed at helping her home state’s ailing lobster industry.

The small-business owners in this industry are fishermen whose companies typically consist of little more than a boat, some traps and a small crew.

Snowe’s “lobster bailout” reveals, I think, an unhealthy bias toward small business in Washington. In the post-Wall Street meltdown world, politicians must toe the line between saying is capitalism is great, but big Wall Street firms are evil. So if capitalism is great but big financiers, and — to a lesser extent — big multinational corporations are evil, then who are the good guys? The answer is small businesses. Both Democratic and Republican politicians trip over themselves singing the praises of small businesses (John McCain’s “Joe the Plumber” schtick being the most obvious recent example).

It might indeed be worthwhile for Washington to help small businesses and, in turn, stimulate the economy. But the main government program to do that, these SBA loans, does not necessarily help the little guy. It’s often helping mega-banks that are able to make government-guaranteed loans. The amount of money involved is much less, but this small business loan program as is unfair and ineffective as the most pilloried Treasury Dept./Federal Reserve Wall Street bailout you can think of.

Comment RSS - You can skip to the end and leave a response. Pinging is currently not allowed.