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Why Obama's Small-Business Plan May Not Help Small Businesses

By Marc Tracy

Well, we've all had about a week to digest the Obama administration's plan to get credit flowing to small businesses again, and, well, it looks like most people have ended up with some heartburn. The plan centers around upping the currently dismal rate of Small Business Administration-backed loans by taking $15 billion from the TARP fund to buy securities made up of SBA-backed loans on the secondary market, eliminating loan fees, and raising the amount of these loans the government will guarantee. (A good summary can be found in this AP article.)

Some of the most trenchant criticisms of this plan did not concern its efficacy--that is, how likely these measures are to up the rate of SBA loans--as much as its ultimate goal. A favorite was this post on OPEN Forum (whose sponsor, American Express OPEN, is also our sponsor), "Is President Obama's New Small Business Plan Relevant?" The answer being, probably not much as it should be, if only because most businesses don't need SBA loans (which, the post says, only make up a small fraction of total small-business loans anyway), or even any kind of loan; what they need is for consumers to start spending money again. The plan is good symbolically, and the symbolism isn't irrelevant--in fact, it should prove a help. But it's also probably not enough.

This point was echoed by Independent Street, which pointed out that most start-ups now--and most of the start-ups that we should be most encouraging the growth of--lack the tangible assets necessary to constitute collateral for loans; their worth consists primarily of intellectual capital, which could prove incredibly lucrative and macroeconomically important down the road, but which right now shuts them out of SBA loans no matter how much the government guarantees. (Imagine how difficult it likely would have been for Google to secure a substantial loan ten years ago.)

Another OPEN Forum post goes a step further and argues that the small-business plan is targeted at those businesses that are small in technical name only: "in some industries a business that has as many as 1500 employees is considered small," this author writes. "I think the small business stimulus was targeted more at the 'larger' small business without consideration of the 'small' small businesses most of us own." That sounds fairly spot-on to us.

Now, when announcing the plan, President Obama did leave himself some wiggle room in asserting, "This is still just going to be a first step in what is going to be a continuing effort to make sure that people get credit out there." But even that's a little troubling because, again, in most cases, credit isn't the problem.

So what should the next steps be? They should be things like additional stimulus, as needed; because ultimately, it is only a surge in consumer spending that is going to pull our economy and the rest of the world's out of recession. And it should be reform of things that particularly weigh on small (actually small) businesses. So perhaps temporarily lifting the payroll tax (which we explored here). Perhaps, at the very least, making sure the 7(a) loan program runs as efficiently as it can, which this article says it doesn't.

We're not going to sit here and say the administration's plan is useless, or even that it's just symbolism; plainly neither of those things is true. What we will say is that if the administration thinks its efforts at helping small businesses can end here, then we will have a serious bone to pick with it.

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