John Schultz's Weblog

Monday January 02, 2006

Federal backing of loans could increase risky loans The Columbia Missourian recently reported on a splurge of Small Business Administration loans being made to bars and restaurants in Columbia. The federal government will cover 85% of the loan value if the business defaults, leaving banks free to issue loans they may not normally approve. In the past five years, the SBA has granted $22.3 million in loans in Columbia, of which $7.7 has gone to restaurants and bars. Of those 37 restaurants and bars, five have closed since receiving the federal money (it is unknown at this time if any establishments defaulted on their loans and invoked the SBA loan guarantee). While the goal of the SBA loans is laudable, the federal government should not be backing loans that local banks may not feel comfortable issuing without a payment guarantee. All of the risk should be placed on the bank that issues the loan rather than relying on taxpayers to bail out any bad loans. ( Jan 02 2006, 08:18:02 PM CST ) Permalink