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If Hard-to-Get Loans Are the Problem, Who’s to Blame?

By Adrienne Burke | Small Business

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Who’s to blame for the slowdown in startups? Recent research shows entrepreneurship is stagnating, and a Senate hearing explored the consequences of an America without entrepreneurs.

A bank CEO points a finger at the Small Business Administration. Writing in the Wall Street Journal on Tuesday, M&T Bank CEO Robert Wilmers says that the U.S. agency tasked with helping small firms has “deviated from its core mission.”

Citing Bureau of Labor Statistics data that show the pace of new business formation is at its lowest in more than two decades, Wilmers says that “half as many small businesses receive loans from the agency’s 7(a) loan-guaranty programs today as did before the recession” and that SBA’s own records “reveal these loans support only two-thirds as many jobs as they did in 2007.”

Part of the problem is 528 pages of regulations that “make it difficult for smaller banks to participate in SBA’s loan programs,” and have contributed to “a 13% reduction in bank participation since 2012,” he says. Also, alternative lenders are on the rise.

Kabbage, Lending Club, Dealstruck, and SnapCap are among the expanding breed of non-bank lenders that offer higher-interest-rate loans online to business owners with fewer regulations than banks. Wilmers suggests that traditional banks like his are more reliable and knowledgeable when it comes to serving local businesses, and better equipped to make loans that suit a community’s needs. “Credit well-extended helps create viable small businesses, which means new jobs, filled by people who buy homes and cars, shop for groceries and clothing, go to movies and museums, pay taxes and give to charities,” Wilmers writes.

To fuel entrepreneurship, he says, the government should re-focus the SBA on lending through community banks.

Predictably, readers of the business publication tend to disagree. “We need dramatically less government, not ‘better’ government,” was the sentiment shared by one commenter and echoed by 30 others. Many complained about the lengthy and costly SBA loan application process, too.

Only one commenter, Natalie Jocovic, praised SBA’s work making loans to businesses through banks: She is an executive with SmartBiz, an online platform designed to streamline the SBA application process. “Online platforms are partnering with the SBA and virtualizing what happens when a small business owner walks into a bank,” she wrote. “With smaller loan sizes, a streamlined, dynamic online application, and stellar customer service, fintech startups like SmartBiz are delivering nicely on the SBA’s promise to help SMBs and add jobs. In fact, the companies that have received SBA funding through our platform planned to retain or add more than 10,000 jobs to the economy as a result of their loans.”

Could the banks, not the SBA, be the problem?

Follow Adrienne Jane Burke at @adajane
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