How the Government Failed Small Business

The Obama administration set a fund of $30 billion to help small businesses. The Treasury Department closed the fund recently after distributing only $4 billion of the money. The action is another example of how the federal government sets programs, funds them, and then fails to make them work.

The Small Business Lending Fund found that 40% of applicants did not meet loan requirements, according to BusinessWeek. Of course, the Treasury Department made the best of a troubled program, at least from a public relations standpoint. It said in a final announcement about the fund that had recently distributed $1.6 billion to 141 community banks. “This brings the total funding for the program to more than $4 billion going to 332 banks across the country,” the department reported.

There are not enough fingers on enough hands to count the economic aid programs that the government has created and then shut down due to lack of success — at least as the government defines it. One of the best examples is the HAMP loan modification plan, which was meant to keep three million to four million people in their homes by aiding them with mortgage payments through refinancing. The final count of mortgages that were actually modified was 530,000. Banks often did not cooperate with HAMP because they had no financial incentive or because the process to make modifications was too complex. As with the Small Business Lending Fund, too few people qualified for relief because they did not meet the defined standards.

The government almost always underestimates how its bureaucracy will affect these economic aid programs. So is their assessment whether the qualifications of businesses and people can reach the bar necessary to get aid. The need for aid implies troubled situations. That means the government must take some degree of risk that those aided will not use the money they receive wisely, or even legally. The government should know, if it is really in the aid business, that failure to recoup invested money is part of the process.

The Treasury has not said what will happen with the $26 billion that it did not use as part of the Small Business Lending Fund distributions. It may become part of the package of expense reductions in the money meant to cut the federal deficit. No matter what the fate of the capital is, the jobs it was supposed to create went uncreated, and another plan to help the economy did not do so.

Douglas A. McIntyre