Craig G. Francis

SBA vs GM - The Good, the Bad, and the Really Ugly

This is the last of a series of posts in response to an article in the Washington Business Journal about the Small Business Administration coming to the end of its share of stimulus money. My first post summarized the article, the second post looked at the difficulties the SBA has getting respect from politicians, and the third post took a closer look at the benefits of the SBA compared to other federal programs.

So, we’ve looked at some of the benefits of the Small Business Administration’s programs, as well as the challenges the SBA faces in accessing sufficient funding from the government.  We have also touched several times on the General Motors bailout by the federal government.  In this post I’m going to take a closer look and compare the two in a cost-benefit analysis.

 

The GM bailout cost to the government from stimulus funds was $50,000,000,000 (that’s $50 billion with a B).  The SBA cost to the government from stimulus funds was only $376,000,000 – less than 1% of the cost of the bailout!

 

GM losses for fiscal 2008 amounted to approximately $18,000,000,000, with no tax revenues for US Treasury.  Compare this to SBA-supported businesses profits in 2008 of some $4,500,000,000 and tax revenues to the Treasury of $1,500,000,000.

 

Looking at job creation, the situation is even more telling.  SBA-supported businesses created in excess of 1,000,000 jobs nationwide.  In contrast, the number of jobs created by the GM bailout was a negative 110,000!  That’s right, a net loss of jobs.

 

In the final analysis of job creation versus cost to the government, the GM bailout resulted in 110,000 jobs lost compared to a cost of $50,000,000,000. In other words, it cost $454,000 in government funds to destroy each auto worker job.  In contrast, SBA-supported small businesses created 1,000,000 jobs compared to $376,000,000 in costs.  Cost per job?  Only $376 per job created.  I repeat, $376 per job.

 

Any one of the members of the Senate Small Business Committee could find money for SBA in their petty tip jar.  But no, now these politicians are on the senate floor voting for a nationalized health care program that will cost you and me at least $9,000,000,000,000 ($9 trillion) over the next 10 years.  We are in serious trouble with this. (Maybe we can fund it with taxes on sodas and juices.)

 

I would not blame any self-respecting entrepreneur for telling the government where to get off.  Personally, if you think I am going to put my butt on the line, commit my entire net worth, put my family at complete financial jeopardy, and then have to hire people who require unaffordable health insurance mandated by the government, pay job-killing minimum wages, plus deal with attorneys ready to sue me at the drop of a hat and tax increases that end up leaving me with less income than my lowest paid employee, let me tell you one thing: It will be a cold day in hell that I will do this!!

 

Give me one of those nice safe government jobs.  Oops, I forgot, states are laying off those safe government jobs.  I will say it again – we are in serious trouble.

 

Ok, now I have had my say.

SBA by the Numbers

In my previous post I shared some of my thoughts about the benefits of the Small Business Administration and its treatment by government.  Today I’m going to share some numbers that, I hope, will make you think.

 

The federal government has created, and continues to create, programs of questionable effect but huge price tags.  The money that the government uses to pay for these programs has to come from somewhere, but it seems the pols don’t understand where when they spend, say, $50,000,000,000 to take over General Motors. It comes from taxes (and the Treasury printing presses).  If we don't have a solid and growing small business community paying these taxes, we won't be able to pay for these programs.  Are you listening, Mr. Obama?

 

These people seem to have difficulty with their priorities.  They can spend $50 billion for GM and do nothing more than nationalize private industry and save jobs for their union supporters.  But when it comes to finding a few peanuts for SBA they can't seem to find one third of a billion.  I think these people are the same short-sighted types that support the casino industry.  They are bad at math, but they are very good at FUBAR and SNAFU.

 

To give you some perspective let’s look at the SBA budget, loan losses, and guaranties provided to US small businesses.  The SBA budget for fiscal year 2008 was less than $600,000,000, and is only somewhat over that level for fy 2009.  Traditional loan losses in the programs are 2% per year (on a 30 year average), but these are made up by user fees.  In 2008, SBA loan guaranties totaled some $16,000,000,000.  Now that is some serious bang for your buck.

 

According to a Price Waterhouse study, the SBA budget is covered 2.5 to 1 by taxes paid by small business loan guaranty recipients.  The loan losses are made up by the SBA guaranty fee, which averages 2% per loan: 2% losses and a 2% fee equals a break even for the SBA. Ergo SBA makes money for the government.

 

Now let’s look at the down side of all this.  SBA loan fundings are down by about 55-60% year over year since 2007.  That means small businesses are losing access to sorely needed capital.  I won't consider the amount of funds provided to the banks through TARP funding, even though the same banks that got TARP are the same ones who should be lending to the small business community, but in many cases are not!  I won't take into account the $787,000,000,000 in supposed stimulus finds voted on earlier this year to help the economy.  I won't compare this to the “Cash for Clunkers” program, which was basically a tax on us to pay for poor peoples’ cars (connect the dots from this abysmal program to help car buyers to the General Motors lobby).  Of course 77% of the cars sold were made by Toyota, Nissan, Kia, and Hyundai.  GM amounted to about 12% of cars sold under this program. What a great program this was.

 

Next time, I am going to take what GM got from the government before IT FILED BANKRUPTCY and compare it to SBA funding and benefits to the economy.  I am not sure who thought it was a good idea to loan GM, a 'falling piano' of a business, $50,000,000,000 and effectively nationalize this giant of American industry – only have it  file bankruptcy – but the US government now owns about 60% of this union dues-soaked dinosaur.  But for some perspective, I will show you what the SBA costs the government versus the cost of the GM bailout to the government.

SBA - A Red Headed Stepchild?

Washington Business Journal: SBA loan surge seen as incentives near end

 

 

Recently I summarized the above linked article from the Washington Business Journal on the possible end of incentives for SBA loans. I have many things to say about this article and the treatment of the SBA by government entities.  First, many pundits have referred to the Small Business Administration as a “red headed stepchild.”  To say the SBA is the red headed step child of government programs insults all red heads and step children.

 

The government, both liberals and conservatives, “Demicans” and “Republicrats” of all stripes, pay nothing but lip service to small business and the SBA.  This is not to say that small business is unable to fend for itself.  This community can do quite well without government. And, perish the thought, if taxes and regulations were much lower, we had tort reform and we were not burdened with the latest government power grab called National Health Care (but I digress), we probably would not need SBA at all.

 

The SBA has done great things for the US business community in the last 30 years.  It provided compelling reasons for banks to make loans to us.  It allowed us access to capital markets that were only reserved for Fortune 500 types of business, and it helped us create well over 20,000,000 new jobs in the last 15 years.

 

In spite of all this success, government leaders continue to ignore the benefits of the SBA.  The amount of lobbying to even get heard by the politicians is costly and time consuming.  The latest query from SBA as to how they can get the funds to sustain one of the most successful stimulus programs in the nation's history by allowing the SBA to offer a 90% guaranty and absorb the fees is ridiculous.  We are about ready to spend $1,000,000,000,000 on a heavily questioned medical insurance and health care coverage plan, and the SBA required only $376,000,000 to get to the present level of funding resources.  Am I the only one who sees a problem with this?

 

Here we have a successful program with increasing loan volume to help small businesses; that actually helps create jobs, reduce unemployment, and boost the business and personal tax bases; and that costs a tiny fraction of the boondoggle programs the government wants to foist on us.  If the small business community can't get capital then there will be NO MONEY for the platinum-plated government programs, paid for and funded by small businesses and their employees. These are the people who pay the majority of taxes in this country.

 

In my next post I will give you some numbers to compare one of these questionable government programs with the proven successful SBA.

Summary: SBA loan surge seen as incentives near end

Recently the Washington Business Journal ran an article on a probable increase in SBA loan applications, because the SBA expects to run out of its share of the economic stimulus money. The article also discusses the benefits the money has provided to small businesses and efforts by some members of Congress to extend the loan guarantees and fee reductions it was used for.

 

Money provided by the American Recovery and Reinvestment Act allowed the SBA to provide 90% guarantees on 7(a) loans, as well as reducing and/or eliminating fees on these loans and on 504 loans. These incentives helped increase SBA loan volume by 60% compared to January and February. With the money running out, the volume of applications is expected to go up, but the real question is how many of these loans will actually be funded. Some members of Congress are looking into keeping these incentives going, but don’t know the amount that would be needed or what the source of the funds could be.

 

The article points out that SBA lending overall is down compared to 2008, in spite of the of the money from the stimulus. This at a time when traditional banks have been less willing to loan money to small businesses. It also reported that nine business organizations are supporting efforts to increase the limit on SBA loans from the current levels to as much as $5 million. Historically larger loans have performed better than smaller loans.

 

Over the next few posts, I will be sharing some of my thoughts on the current SBA loan situation. I invite you to share yours as well.

 

For the original article, click here.