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Another Stimulus Fail: Small Business Lending Fiasco

The Small Business Lending Fund, a federal program aimed at helping small American businesses and banks, has fallen to bits. Tuesday was the last day on which banks could receive the low cost capital for lending on to small business; poor design and a cumbersome process meant that $26 billion of $30 billion earmarked to help small businesses during the recession is returning to the general government fund.  CNN Money has the story:

The Small Business Lending Fund, set up last year with $30 billion to help banks jumpstart lending, disbursed a mere $4 billion, Treasury said. And it left many rejected bankers frustrated.

The news comes as small business owners complain that they cannot grow or hire because they lack access to credit. The sector has been in the spotlight as the country grapples with a sky high unemployment rate…

The lending fund was created as part of the Small Business Jobs Act. It was intended to pump ultra-cheap capital into banks that have less than $10 billion in assets. The banks, in turn, lend the money to small businesses that need it. Treasury had to get the money to banks by Tuesday.

But only 933 community banks applied, requesting $11.8 billion. There are 7,000 community banks across the nation, according to the Independent Community Bankers of America.

One big reason the small business stimulus program failed: the economy was so much worse than the administration thought that few small businesses were ready to borrow money they feared they could not repay. To put that another way, the stimulus failed because we were in a recession, and the stimulus was only designed to work if economic conditions were reasonably good.

Can there be a more dismal and abject confession of failure than this?  The program was no sideshow; it was to be funded at $30 billion dollars — a significant chunk of change even in the context of the largest (and least successful) economic stimulus package in American history.

The failure confirms the impression that the economic stimulus program was poorly designed and poorly executed right from the start.  Shovel ready jobs weren’t shovel ready; loan programs didn’t lend; programs to stimulate the mortgage market were shoddily designed and inappropriately applied.

This administration may be the first one in American history that could not get its act together to shovel money out the door during a recession.  It also suggests a lack of seriousness and competence among those charged with overcoming the gravest economic crisis to hit the US since World War Two.

This abject and avoidable policy failure has cost the administration dear, and properly so.  Had small businesses across America benefited from a government loan program during a credit crunch, some of Main Street’s skepticism about government spending would probably be blunted — and whether the program benefited the overall economy or not, the jobs created would be boosting the President’s poll ratings.  That thousands of small businesses failed to get help while politically connected Solyndra burned through hundreds of millions in loan guarantees will harden the opposition of many to any and all government programs.

Competence counts.  The Obama administration would be on much stronger ground asking for a new round of economic stimulus if it had a better track record with the funds it has already received.

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  • gracepmc

    No surprise really. Now I am curious and skeptical about what happens to the $30 billion.

  • Vilmos

    > while politically connected Solyndra
    > burned through hundreds of billions

    You mean millions. 🙂


    • Walter Russell Mead

      correction made; intern flogged. WRM receives large management bonus and celebratory stock options for prompt reaction.

  • Rifle308

    SARC ON/ What??!! The current administration is incompetent?! Impossible! We all know Obama is the smartest man to ever be president!

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