Posts Tagged ‘U.S. Senate Banking Committee’

U.S. Government: Punish the Prudent Small Businesses

Thursday, May 21st, 2009

In his testimony yesterday to the U.S. Senate Banking Committee, Treasury Secretary Timothy Geithner acknowledged that “small businesses account for most of the jobs in this country. That is why are trying to expand these programs for them.” Reflecting the popular anger at the bailouts of the rich and the reckless, Geithner appears to be repeating message points about how the “prudent” who did not become over-extended and behaved responsibly are suffering as a result of the behavior of the less prudent. At the hearing yesterday, he specifically referenced “viable businesses” that were “prudent” and “did not take on too much debt” now need to be helped because their access to capital has been hindered by the choking up of the credit markets.

Except that is not what the federal government has done.

The stimulus bill passed by Congress in February requires the Small Business Administration to create a new “business stabilization” program to back loans of up to $35,000 to small businesses “experiencing immediate financial hardship”.  Known as America’s Recovery Capital (ARC) Loan Program, this emergency SBA program restricts the use of the proceeds of the loan. It rewards debtors in an unusual way. Small business owners cannot use new ARC loans to cover payments on existing SBA-guaranteed debt. However, as I posted on this blog on March 23, private loans made for any legitimate business purpose — including credit card debts, bank loans and real estate loans — would be eligible for the program.  So if you managed your small business carefully and avoided taking on debt, or you took on less expensive (relative to credit card debt) SBA loans, this program is of no help to you.

This is exactly at odds with what Secretary Geithner said about the administration’s plan to help “viable businesses” that were “prudent”.

Perhaps reflecting their own lack of familiarity with the legislation they had passed, not one senator on the banking committee called him on it.