Small Business Administration’s Lending Programs Falter

The Small Business Administration’s top priority is providing small business owners with the funds they need to continue to operate their enterprises. The amount of money that the administration received from the federal government for lending programs has declined for the third year in a row. Although this may appear to be negative, experts who studied this issue believe this is actually good news.

The Latest Trend in Lending

The Small Business Administration or SBA granted loans to owners of small businesses in the amount of $28.6 billion. Last year, administration-approved loans amounted to approximately $1 billion more than this year’s sum. In 2011, small business owners received $30.5 billion in loans from the SBA.

Upon close examination of SBA-approved loans, experts discovered that the administration granted smaller amounts of money to a larger number of people. In 2012, the SBA approved 53,848 applicants for loans. In 2013, the number increased to 54,106, and in 2014, 58,000 applicants received the money they sought from the administration. These statistics are very positive for small business owners.

What Is Driving the Trend?

When the country was in the middle of the financial crisis, small business owners often complained that it was extremely difficult to borrow small sums of money. A small business loan is considered to be under $150,000. Lenders do not like to grant loans of this size because these are known to be riskier loans.

The SBA’s lending programs make it easier for small business owners to obtain credit because the administration agrees to repay lenders in the event that the borrowers default. This encouraged lenders to begin to approve more loans for small businesses, and it is the reason that the number of small business loans increased over the years.

The Analysis

Small business owners are obtaining what they need, and analysts state that this is a good thing. However, something else is going on that may not be as positive. Officials with the National Bureau of Economic Research conducted a study, and they found that these loans are having a negative impact on society.

Specifically, researchers discovered that a location with an increased number of SBA loans experiences a decrease in its rate of income. For example, if a county had a 10 percent increase in small business loans from the SBA, economic growth slowed down by two percent. These loans also impact the surrounding counties’ income negatively. Generally, the jobs small businesses create offer employees lower wages that do not have generous benefits packages.

Where Researchers Believe the Country Needs to Go

According to researchers, the administration favors small businesses and neglects those that will have a real impact on the economy. Researchers with the Census Bureau and the University of Maryland learned that organizations that create most of the new jobs are new businesses and not necessarily just small ones. They came to the conclusion that policymakers are misguided in their focus on small businesses. They believe it is time for politicians to shift their way of thinking.

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