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July 11, 2009
White House now looks to bail out small businesses
Rick Moran
Don't you just love our new "no fail" economic system? Looks like the Obama administration is now looking to make sure that incompetent small business owners who deserve to fail will now get a helping hand from uncle sam - courtesy of us, the taxpayer.
David Cho of the Washington Post:
The Obama administration is developing an initiative to take money from the $700 billion rescue program for the banking system and make it available to millions of small businesses, which officials say are essential to any economic recovery because they employ so many people, according to sources familiar with the plan.
The effort would represent a striking shift from the rescue program's original mandate, since it would direct billions of bailout dollars toward a plan that aims more at saving jobs than at righting the financial system. Some economists estimate that small businesses, defined as firms with fewer than 500 workers, employ most of the country's workforce.
A proposal being floated by senior Treasury Department officials calls for using the bailout funds to expand a government program that helps small companies borrow from banks at low rates to keep their businesses going, the sources said. These "working-capital" loans would come with few restrictions and could be used to buy inventory, hold on to employees and pay off short-term debt.
The initiative would bulk up the Small Business Administration's most popular lending program, called 7(a). Lines of credit for small companies could greatly increase in size.
From rescuing the banking system to salvaging small businesses is a pretty big leap. And while it is true that small businesses employ around 70% of the workforce, it is also true that, depending on the industry, those businesses fail at rates above 80% over a period of three years.
Times are tough but one fact seems to have escaped our white knights at the White House; small business failures are good for the economy. The fact is, if it is their first business, around 75% of those failed business owners will start another company - and succeed at a much better rate. If they fail again, around 50% of those two time losers will start a third business. Their success rate is better still.
The point of all this churning is to weed out the incompetent, the inefficient, business owners to make a more dynamic economy. Propping up failed businesses is a drag on productivity and wealth creation. And I doubt very seriously if the White House is going to differentiate between good business owners and bad ones. Better to forget the whole thing and use TARP money as it was originally intended.
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