The Official A.R.C. Outcry Begins
By Robb Mandelbaum
The frustration that Agenda readers have shared over the Small Business Administration’s A.R.C. loan program (see here and here and here) has finally percolated up to some of those responsible for fashioning it in the first place. On Tuesday, Senator Bill Nelson, Democrat of Florida, held a press conference in North Fort Myers, where, according to the North Fort Myers Neighbor, a weekly paper, he decried the dearth of A.R.C. loans in Florida as “appalling.”
Senator Nelson placed blame first on the banks, which don’t want to make the A.R.C. loans, he said, because they “can make a lot more money by making the small business owner borrow their money on their credit cards.” He also notes that big bailout recipients such as Citibank and Bank of America still aren’t participating. “That’s simply not right,” he said.
Fair enough, to an extent — as we’ve reported elsewhere, banks see too much effort for not enough profit in the program to make the loans. But then Senator Nelson attacked the S.B.A.’s implementation of the program. Its underwriting rules, he said, “are so stringent that very few businesses . . . can qualify. They say they have to be in business for two years but one of those years has got to be profitable. We’re in the middle of a recession — they can’t be profitable.”
Legislators like to kick around the bureaucracy, so Senator Nelson’s comments are not surprising. In this case, however, they are misdirected — he should be pointing his finger at his colleagues who drafted the provision, as well as those who voted for it. (The latter would include, incidentally, Senator Nelson.) It was Congress that insisted eligible business be both “viable” and “experiencing immediate financial hardship,” a practically impossible balancing act in which the S.B.A.’s profitability rule makes pretty good sense.
It was also Congress that capped the loan size at $35,000. Pair that with the strict accountability that lawmakers also demanded of stimulus programs, which is why the S.B.A. rules are so stringent, and you get a loan that is thoroughly unappetizing to banks. One could argue, I suppose, that the S.B.A. has overreacted to the political climate, but you can’t really blame it for that. The S.B.A. is caught in its own untenable balancing act: If it had been too generous with program requirements, instances of fraudulent lending would almost certainly have emerged, and perhaps those instances would have been widespread.
Then Senator Nelson, or one of his enterprising colleagues, would instead be holding a press conference decrying S.B.A. incompetence and calling for heads to roll.
