Dr Jeff Cornwall

Are markets getting out ahead of government intervention when it comes to small business lending?  It seems that small business lending is starting to heat up, but the SBA is mired in the complexity of trying implement their part of the “stimulus.” 

From the Wall Street Journal:

The increased activity comes despite the fact that the SBA has been slow to
implement some measures aimed at stimulating lending and loan sales on the
secondary market. The agency missed a March 4 deadline to create a secondary
market specifically for 504 loans, capped at $3 billion. The government hopes
this will facilitate the buying of bundled 504 loans….

The SBA had said it plans to finalize the regulations by June, but an
announcement may come this month. The agency says the delay is the result of
sophisticated financial modeling and complicated legal-documentation changes
that need to be made in order for these new programs to work.

I see two possible outcomes once the SBA gets its act together.  Neither are particularly encouraging and they are not mutually exclusive.

One outcome would be the flood of small business lending that the administration wants.  That will inevitably lead to a small business loan bubble that will surely pop sometime in the not too distant future.  Too many small businesses will be given loans that they cannot afford.  The SBA programs often put social agendas ahead of economic ones, just as we saw with the home loan disaster fueled by government meddling in those markets.

The other possible outcome is that the bureaucratic complexity will bog down SBA programs,adding nonproductive costs to the lending process.

Since the markets are working on their own, why not step out of the way?  After all, as blogger Matthew Bandyk from US News points out, 58% of small business owners have no interest in SBA loans.