Billions of dollars have been funneled into capital markets to bolster lending to small businesses. These federal funds can be leveraged at a ten-to-one ratio to create even more loans. Whether or not this is truly helpful or just funneling money into the wrong hands has come into question on more than one occasion. A very similar program, the 7A SBA Loan Program has also been called into question. We’ll explore some of the details of this issue, in today’s article.
In the words of the Small Business Administration, “The 7(a) Loan Program includes financial help for businesses with special requirements. For example, funds are available for loans to businesses that handle exports to foreign countries, businesses that operate in rural areas, and for other very specific purposes.”
This is certainly a worthy goal, but, with default rates being reported at 6.8%, it is becoming a very costly way to lend out money. Some people in the private capital markets have fared even worse, with default rates in the double digits.
So, should we continue to fund programs such as the 7a SBA Loan Program, or have these programs proven ineffective in allocating funds into the right hands? It is hard to distinguish between companies that are simply falling on hard times and those that are destined for bankruptcy. However, there is one thing for certain: we need to have a serious review of where we are channeling our resources.
For more information on this program, contact your local Small Business Administration chapter.