Is the Federal Government Considering Direct Loans to Small Businesses?

If the government sincerely wanted to assist small businesses with their loans, would the money come from the government itself or through traditional private lenders? This question is now being debated in Congress. At one time, the Federal government, through the United States Small Business Administration (SBA), made direct loans to small businesses. They processed the paperwork, made the decisions, and disbursed the funds. It is a common misconception this process continues today, especially in light of the Stimulus Act and increased government expenditures. This process stopped during the Reagan administration when private lenders make the loans under the supervision of the SBA and in which their losses were guaranteed. In our troubled economy, which device would work best in helping small businesses? In my opinion, it should be the private lenders.

Let us go right to the core issue. We do not need more government regulations, higher taxes, more government agencies, or more Federal spending. Let the small community banks do the lending through their well established systems. You remember them, they are the banks on the corner that did not get bailout money. All you need to do is give them incentives to loan.

Start by getting off their backs, in the sense of crushing regulations or never-ending and constant audits. Then make the book of rules and procedures more simple and streamlined. Make it easier for them to be reimbursed for their losses in the submission process. And finally, increase the SBA loan guarantee to the threshold of 100%. This means that if someone defaults on the loan, the bank's losses will be reimbursed 100%.

Simply collect money from the borrower at the time of closing which will be amply used as a war chest to fund losses. Senator Kerry did not like that idea and eliminate all such fees under section 501 of the American Recovery and Reinvestment Act of 2009. Our taxpayer dollars then paid for the losses. The plain fact is I have rarely met a borrower who turned down the loan because they had to pay this small fee.

For example, on a $50,000.00 SBA loan, the SBA guarantee fee would be $900 (tax deducible of course), which is 2% of 90% of the loan amount. Who wouldn't want such a loan? Hopefully Congress will see this simple principle in the full light of day.

You do not have to convince the smaller community banks to step up to the plate. Just refrain from encumbering them on the way to making their loans.

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