INTRO David Stockman, the budget director under President Regan’s administration supported the abolishment of the Small Business Administration, referring to it as a “billion-dollar waste” that benefited few small businesses, while distorting credit markets (Dehaven, 2011). The economy is ever changing, with that comes necessary reform. Market forces to an extent have always driven the economy, they dictate which products come out and at which prices they sell. The government should abolish the SBA and make way for private capital to allocate funding for small businesses. This would allow market forces to determine which businesses acquire funding and ultimately gain success. THE SBA : WHY, WHAT, CONNECTION TO THESIS The Small Business Administration …show more content…
Research suggest that this alleged problem holds no real weight. The belief that credit rationing is occurring, making it more difficult for small businesses to gain access to capital has been disproved in a study conducted by Alec R. Leverson and Kirsten L. Willard entitled “Do firms get the financing they want? Measuring Credit Rationing Experienced by Small Businesses in the U.S. It was found that although small business credit is not available to everyone no evidence exists that government intervention solves this issues (Leverson, 2012). Shutting down the SBA would not prevent small business from obtaining financing. Research shows only 1% of small business loans both (long term and short term) in a given year receive them from the SBA. And while 29% of 7(a) loans go to minority business owners, SBA distributes loans to roughly only 3% of all minority-owned firms. The same trend is true for women-owned firms. In other words, the SBA is largely irrelevant in the capital market. Even the National Federation of Independent Business, the chief small-business lobbying group, agrees. “Our members tend not to rely on SBA loan programs,” Says Andrew Langer, the NFIB’S manager of regulatory policy (Rugy, …show more content…
Because the SBA guarantees loans, the banking industry- namingly large banks- assume the least risk of all parties involved. The SBA’s primary 7(a) lending program guarantees 85 percent of loans up to $150,000 and 75 percent of those from $150,000 to $5 million (SBA, 2014). Banks in turn issue loans realizing the minimal amount of risk afforded to them. As previously stated, the purpose of the 7(a) loan program is to provide incentives for lenders to loan to businesses who otherwise would be unable to find “credit elsewhere”. The loose definition of credit elsewhere- "the availability of credit from non-federal sources on reasonable terms and conditions." (15 USC 632(h) places the discretion in the hands of the banks as audits reveal that many businesses who received SBA guaranteed funding where also eligible for unsizidized loans from traditional lenders. The Government Accountability Office recently reported that a third of the lenders sampled "failed to consistently document that borrowers met the credit elsewhere requirement or personal resources test." The GAO noted that for approximately 20 percent of lenders that did provide documentation, "the explanations they provided were generally not specific enough to reasonably support the lender's conclusion that borrowers could not obtain credit elsewhere."