Are SBA loans bad for the economy?

Do Small Business Administration loans hurt economic growth, instead of helping it?

That’s what the National Bureau of Economic Research has concluded, based on their researchers’ sample of 3,035 counties from 1980 through 2009.

“A spatial econometric analysis suggests than an increase in SBA loans per capita in a county is associated with negative effects on its own rate of income; also the growth rates of neighboring counties,” the working paper found.

“Overall, a 10 percent increase in SBA loans per capita is associated with a cumulative decrease in income growth rates of about 2 percent,” the researchers found.

That could be because “SBA lending to small businesses comes at the cost of loans that would have otherwise been made to more profitable and/or innovative firms,” they conclude.

That’s not the way SBA loans are supposed to work, however. By providing a government guarantee on loans — anywhere from 50 percent to 85 percent on the SBA’s flagship 7(a) loans — the agency encourages lenders to make loans to small businesses that otherwise might be considered too risky.

More profitable businesses should be able to conventional loans without the government’s help.

The SBA approved around $19 billion in 7(a) loans in fiscal 2014, which ended. Sept. 30. It approved another $4 billion in 504 loans, which are used primarily for owner-occupied real estate.

The NBER working paper provides free-market ideologues with ammunition to use against the SBA. Unlike the Export-Import Bank, the SBA doesn’t help corporate giants like Boeingget financing, but both agencies represent government involvement in credit markets — something many conservatives oppose.

Ex-Im Bank has at least temporarily survived conservative efforts to put it out of business. Will they go after SBA loans next?

Article by:  Washington Bureau Chief-

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