Anatomy of a stimulus effort gone wrong
Column by Chris Graham
It all sounded good. A Small Business Administration workshop leader told a group of small-business owners in Harrisonburg this past summer about a new loan program funded under the Recovery Act that was designed to help struggling small-business owners deal with short-term cash-flow issues resulting from the ongoing financial and economic meltdown.
What the SBA didn’t tell the moms and pops was about how the red tape that comes with dealing with the byzantine bureaucracies of banks and the federal government would make participation in the program a virtual nightmare.
“And they wonder why people are worried about what would happen if the government took over health care,” one business owner told me of her experience with the SBA, which initially approved her business for a loan under the ARC Loan Program, but after some confusion, and weeks of unreturned phone calls and e-mails involving SBA offices in Richmond, Arkansas and California, well, she’s out of luck.
The situation of the business owner – whose name and business I’m keeping anonymous – qualifies her according to every criteria laid out for the ARC program. The loans are supposed to be available to businesses with immediate cash-flow issues for the purposes of making payments on principal and interest on existing debt, including lines of credit and business loans and credit-card debt.
She said the presenter at the SBA workshop was encouraging everyone in attendance to apply for the loan program stressing the eased restrictions on the loans that didn’t even require security in the form of collateral, just a basic indication of the relative viability of the business.
I scoured the page on the SBA website for details on the ARC Loan Program, and having done so I don’t think it was necessarily oversold to the meeting attendees in Harrisonburg. The program doesn’t require collateral from the borrower, doesn’t charge interest to the borrower, and requires of borrowers only that their business has been in business for at least two years and can demonstrate positive cash flow in at least one of the past two years.
The local business owner hit the first snag in the process in working with her lender, which initially didn’t want to have anything to do with the ARC program because of the time and expense on the bank’s end in working through the approval process and the low return on investment for that time and trouble in the form of the reimbursements from the SBA on interest.
She eventually got her lender to sign on, and obtained the approval from the SBA, but with what had seemed to be a mistake on their end requiring collateral to secure the loan. More than a month of phone calls and e-mails from her lender to SBA offices in Richmond, Arkansas and California for clarification on that point went unreturned before she got word that even though she was told in the SBA workshop that the program didn’t require collateral, and nothing on the SBA website said the ARC program would require collateral, she’d need to secure the loan with collateral.
In the meantime, she’s out untold hours of time and energy spent dealing with an ineffective government bureaucracy. And the cash-flow issues that were hounding her before – credit-card minimum payments that tripled because banks that received TARP monies to free up lines of credit to consumers and businesses are seizing upon an opportunity to improve their bottom lines, a client who has declared bankruptcy to escape its own obligations – haven’t gotten any better.
Partisans on both sides are going to spin this story to suit their talking points. To me, the lesson isn’t that government programs are inherently inefficient; it’s that you can’t just throw money and good ideas at a problem and come up with a solution.
This much is clear from my tangential dealings with the stimulus in examining this one particular case study – the stimulus, though a good idea, and certainly costing gobs of money, isn’t going to be a solution to our economic recovery if we don’t manage it better than we are right now.