In a recent Forbes article citing the book “OpenTheBooks Snapshot Oversight Report – Truth in Lending: The U.S. Small Business Administration’s $24.2 Billion Bad Loan Portfolio”, the Small Business Administration’s (SBA) investment portfolio from 2000 to 2015, was analyzed. I want to begin by stating that, as a fellow small business owner, I was not shocked to learn of the SBA’s funding failures. Creating and maintaining a small business is hard work, and statically, regardless of funding opportunities, many will fail.
I was shocked, however, at the invested businesses that were failing, and the amount of funding they received.
A few months ago, I wrote about large corporations receiving funding from the SBA, despite their large corporate status. Wealthy companies gaming the system has been an issue for decades with the SBA, and this report tells the tale better than any article I’ve ever read. Now I won’t get into every statistic, but I will highlight a few of the most troubling:
Did you know that $160 million was lent to nationally recognized country clubs and golf courses from 2007 to 2015? "Many now-defunct clubs and courses received $61.4 million in SBA lending since 2000 and $44.6 million was charged-off against taxpayers.“ In the convenience store and gas station industries, over $500 million in failed lending was given to the likes of "Phillips, Conoco, Shell, Marathon, Citgo, Texaco, Chevron, Hess, and BP.” Quiznos and Cold Stone Creamery also found funding opportunities with the SBA to the sound of $58.1 million and $49.1 million respectively (both of which failed).
Sadly, this is only part of the problem as the SBA has not been good at evolving with the times. "In 2007, the largest loan went to a travel agency called Florida Holidays for $1.4 million, of which nearly $800,000 was charged-off.“ To add to this, from 2002 to 2008, the SBA invested heavily in the video cassette tape industry. These investments cost the American taxpayer about $60 million. In 2006, the SBA lent $3.8 million to 3 Blockbuster video stores alone (from 1997 to 2005, Blockbuster had a negative gross profit margin).
So how do large corporations receive low interest small business loans? Loopholes! According to the article, "Large corporations gamed the system by subdividing their businesses into “small business” franchises to qualify for the low interest, government guaranteed loans. Taxpayers – through the SBA – underwrote the national rollout and distribution plans of these companies. Many of these loans defaulted.”
In closing I want to make something clear. I support business, whether they be large or small. Any legal entity that employs people and pays them a fair wage is good in my book. I also support competition. I think healthy competition helps our economy grow. I can not, however, support companies taking advantage of rules for short term benefits resulting in long term problems. I’m not sure how, but there must be a better way to reward qualified businesses with SBA funding. Someone must take charge and make sure these loans are going to the right organizations. I’m not upset at the amount of funding lost, but I can not support who and what these amounts are going towards.