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New And Unimproved Lending Figures
By Marc Tracy
We're on a limited posting schedule for the next few days, but we thought we'd take note of the most recent quarterly statistics for Small Business Administration-backed loans. These loans, which are made by private lenders but backed to varying degrees by the SBA, have been the beneficiaries of numerous subsidies stemming from February's federal stimulus law: their fees have been temporarily waived; more businesses are eligible for them; and the loans are backed to a greater degree, and at higher amounts, than ever before. All in the name of trying to increase the flow of much-needed credit to small businesses.
And the results? The year-over-year numbers are down 30% from 2008, and 55% from 2007. Loans from the first nine months of fiscal year 2009 are down nearly 50% from the same period in 2008. In sum, we have our first look at the SBA programs with the subsidies in place--and with everyone knowing that the subsidies are in place--and things are significantly worse.
So does that mean the subsidies failed? Well, there's no way to know. We don't know what those loan figures would be if the subsidies had never been instituted. Certainly, though, it is eminently plausible that those figures would have been much, much worse, in which case the subsidies indeed succeeded in doing what they were supposed to do. The consensus, after all, is that demand for credit is if anything the prime culprit for the decline of small-business lending, not banks' (un)willingness to lend.
But are the subsidies a waste? Here we'd have to say yes. What these numbers are telling us, it seems, is that credit is not where attention should be focused. Lending is going to be down, period. Partly this is just smart business strategy: in good times, credit tends to be used less to get by and more to grow, and recessions are not good times to pursue growth strategies and to assume increased debt when you don't have to.
Consumer spending, on the other hand, is down, and in a way that only does harm to small businesses. So we would've liked to have seen the money used for these lending subsidies to have instead been used for various programs to juice spending. In fact, we've been saying this for some time. And while we take no pleasure in seeing these lousy statistics tell us that we were right, that is exactly what's happening.
Comments (0)July 6, 2009 3:01 PM
