SBA loans are unobtainable

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Most businesses that have been in operation for a significant period of time have developed relationships with one or more banks. When an opportunity presents itself to expand their business or fund a startup, they look to these banks for help in securing funding. With the downturn in the economy these past two years, institutions have tightened their lending practices so that old relationships count for little when seeking loans. This tightening of credit has forced people to turn to the government for help via SBA-subsidized loans, loans that our president and our local congressman have touted as being available for the small business person.

On September 27th, President Obama signed the Small Business Jobs Act (H.R. 5297), which provided for $30 billion to establish in the Treasury Department the Small Business Lending Fund Program (SEC. 4103). Democrats claim to support small businesses and point to bills such as this to emphasize their stance; they continuously mention that small businesses are the backbone of the American economy and need government support. However, it seems the reality is much different from the Democrats’ rhetoric.

An investigation conducted by the Small Business Freedom PAC over the last several weeks has revealed that the SBA Loan Program is something that the small businessman cannot rely on for help. Our research has shown that even for businesses with exceptional credit and a strong business background, SBA-subsidized loans are extremely difficult to obtain. After visiting several banks that participate in the SBA program, we came away puzzled as to where the funding is actually going. It certainly is not making it to our locale. If a businessman with good credit and assets in the millions cannot get a $50,000 loan for a startup, then who can?

Three banks were contacted and the same scenario was repeated at all three. After talking with the loan officers and providing them with the pertinent information, we were informed that most SBA loans were not approved and those that were stayed in limbo for an indeterminate amount of time waiting for the funds to come through. All three were willing to proceed with the paperwork but doubted that their applications would be accepted. They all recommended proceeding through normal loan channels, where a decision would be rendered much more quickly. When asked about the express loans provided by the SBA, a smile appeared on one of the loan officer’s faces. He replied that the paperwork was trimmed down by a few pages but that other than that it would not result in a faster response.

Wondering if this experience was an anomaly, we talked to another well-respected businessman in our community (Charlottesville, Virginia) who works closely with other local business people. He told us that this problem was shared by others. A personal friend of this acquaintance who happened to work as a loan officer for one of the local banks had told him of the difficulty of obtaining SBA loans; this was verified by several other local businessmen who had tried the SBA route with no success. If obtaining an SBA loan in Charlottesville, where the unemployment rate is just 6.2% (well below the national average of 9.6%), is this difficult, how much worse is it in more economically depressed areas or the country?

This once again proves that more bureaucracy is not the answer to our economic problems. What the administration and the politicians fail to understand is that the solution to our economic problems is to allow localities to keep more of their hard-earned money and to provide an atmosphere of certainty that will convey to the business community that there is a positive outlook and it is safe to plan for the future. Once people feel secure about the course that lies in front of them, banks and businesses will be willing to invest. This in turn will spur economic growth.

William Hay is the executive director of Small Business Freedom. Laurence Verga is the chairman of Small Business Freedom.