Scott SoCal said:
The home mortgage scandal(s) has basically crushed small time lending. Small business in essence has very little access to capital except their own. It makes for slow growth... no surprise there.
I think Alpe has been floating his ideas of SBA mirco-loans.... in the tens of thousands to low hundreds of thousands of dollars for small enterprise. A good idea although I don't know why the regulatory rules could not be relaxed for this type of lending to open it up to other banking entities besides just the SBA.
You've pretty much got it.
SBA Microloans are for very small businesses looking for between about $5k and $50k, the average is $13k.
SBA Prime loans are similar, and for the smallest start-up or distressed business needing help (picture a hot dog stand).
How the program is supposed to work for example is like this: Picture our local hot dog stand owner. He has one employee who works two days a week. Business is slow, and he needs a new grill, but he's barely hanging on. He doesn't want to lay off the employee, and doesn't want the grill to die, so he goes to the bank and applies for a SBA loan. As you can guess, what's happening is that the bank is denying almost everyone, even businesses running with good credit, even though if they loaned this guy $13k and if he defaulted the government would absorb up to about $8k of that, the banks simply aren't making the loans.
The reasons why are beyond just regulation, though that is a part of it and rules for small loans could be completely relaxed. The problem is that almost all regulation is clumped together. This is what allowed banks to invest in derivatives like Vegas gamblers, and going back to that thinking isn't going to change this much. It's an issue of risk aversion, economic fears, and basic greed. In some ways you can't blame bankers.
Part of my solution, if you'll recall from several pages ago, is to couple this with unemployment insurance, so people who have a qualifying business idea - and some states already have SEA programs - and can't get a job (because there are so few) could use the unemployment coupled with a SBA Prime loan to start a tiny business (such as a hot dog stand). Even if they failed at the business it would put at least
some productivity and growth into the economy, much more than them sitting around looking for jobs that aren't there collecting unemployment for months on end.
You can probably guess the next part. Both the President's economic proposal, plus the House' "Ryan" budget have large cuts to SBA loans, including elimination of the entire SBA Prime program. So what we're getting is stupid on top of stupid, from both parties.
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