Mercatus on Policy: Banking on the SBA

In 1953, Congress created the SBA to fix a specific problem: Lenders allegedly passed over large numbers of small businesses that, if given loans, would generate untapped economic growth. Assuming that this was a problem in 1953, the problem no longer exists. Moreover, the SBA loan program is not currently doing much to generate a good economic return or help small businesses.

Yet, in FY2008, the Small Business Administration (SBA) will guarantee $28 billion in loans. That's because the SBA serves two powerful constituencies: lawmakers who have successfully sold the SBA as a program to help the so popular small businesses and the banking industry, which profits by issuing and selling the low-risk, government-guaranteed small-business loans.