Lack of Enthusiasm Among Lenders

Lots of Paperwork, Few Results

According to a recent survey conducted by Coleman Publishing, 80% of small business lenders are not committing to participate in the emergency loan program of the U.S. Small Business Administration. Known as the “America’s Recovery Capital Program” the emergency loan program for small businesses was authorized in the stimulus bill passed in February. 35% of lenders surveyed decided categorically not to participate in the program; 45% had not taken a decision, as there was a lack of clarity about the program specifics, although loan applications are to be made available to participating banks on June 15. Only 20% of small business lenders surveyed stated that they would participate in the program. The issue is that the SBA itself does not make loans; it guarantees them to participating bank lenders. I had written in a blog entry on March 23 that I thought it unlikely that banks would want to participate in this program. With the principal guarantees on the loans being raised, taxpayers would assume a greater share of the losses. Presumably bank executives are sufficiently savvy to know how the public would assign blame for that outcome. I doubted that they would want to be once again on the receiving end of the pitchfork. Add to that other reasons for the lack of enthusiasm in the banking sector for this program: its complexity, the lack of fees or interest to compensate banks for their investment of resources in processing these loan applications, the definition of viable business and so on.  It is a substantial amount of work for relatively small loans with a limit of $35,000 and funding sufficient for only 10,000 small businesses to participate. That works out to 200 businesses per state. We could have that many small businesses apply for New York alone. This program appears to be an ill-conceived effort to throw a bone to the small business constituency that is understandably outraged about the bail outs of Wall Street and Detroit.