It’s always nice to hear from readers in the “real world” who deal with government programs first hand. I recently received an email from a credit analyst with a commercial bank who read my essay with Veronique de Rugy on terminating the Small Business Administration. I think it’s worth sharing (name withheld):
I commend you for your excellent piece on “terminating the SBA.” As a credit analyst for a commercial bank based in DC, I’m in a special position to see the tragedy of it.
In addition to everything you cited, it’s also worth noting that the SBA will not sign on to loans if the guarantor is too strong (on the theory that such a guarantor already has access to credit). This policy necessarily means that the SBA only guarantees high‐risk loans. Next, the SBA mandates low interest‐rate ceilings (in the name of aiding its Borrowers), meaning that the loans are low‐reward from an SBA income standpoint. You put that together and what you have is the SBA is putting the taxpayer’s money into a portfolio that is high‐risk, low‐reward by design, and further burdens us with a massive overhead of nationwide offices and 2,000+ employees. (One also might wonder about the opportunity cost we pay when 2,000 people who could presumably be producing bona fide goods and services are instead taking from our limited resources and redirecting them into operations with an unusually high failure rate).
I’m convinced that nearly all of the good loans made with the SBA’s guarantee would have been made anyway, and we would have been spared most of the bad ones and a whole lot of headache.
The reader’s name had to be withheld, of course, because the bank probably wouldn’t appreciate one of its own publicly acknowledging that SBA loan guarantees are an unnecessary handout.