Washington Post Article - "White House Eyes Bank Bailout of Small Business"

There is talk from Washington about giving small business owners a “bailout”. This is a step in the right direction. However, some additional thought needs to be undertaken before rushing headlong into approving another non-workable government solution. Here are some key things to remember - the Small Business Administration does not make loans. The SBA provides a guarantee to banks that make the loans.

If banks aren't going to change their standards to approve these "rescue loans", then there is no rescue. And I know from personal experience that bankers superimpose their rules over that of the SBA. (I was a commercial banker for over 20 years). Just because the SBA says it’s possible to make a loan a certain way ….it doesn’t mean that bankers will make the loan.

And let’s not make the proposed small business bailout a paperwork jungle. The widely touted ARC "America's Recovery Capital" (SBA loan of $35,000 to small business to help them stay current on other debt) is very onerous for bankers to process. In visiting with commercial bankers, they tell me that the paperwork for ARC loans is about 4 inches thick. Doing an ARC loan is every bit as time consuming and difficult to put together as a regular SBA 7(a) loan. But the kicker is….it is only $35,000 and some bankers consider this a waste of their resources.

In fact one banker at a regional bank said that other bankers are referring ARC loans to her. Why? Because the other banks don't want to take the time to do them. There is no profit in it for them. This particular loan officer and her bank are making ARC loans because they know in the end; they will get some "political capital" out of it. They'll be able to say - "we made loans when others wouldn't". It’s probably a good strategy since bankers' reputations have become worse than used car salesman. (No offense meant…but that is a reality).

Here's a suggestion, before approving this small business bailout make sure it is really going to be a bailout and not a paper shuffle that Congress can claim "we did something". Let's do this right. We only get one shot.

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