The Small Business Administration Picks Losers Over Winners

I cover the “daily greed” of national, state, and local politics

The mission of the U.S. Small Business Administration (SBA) is to provide lending to “Mom and Pop” businesses on Main Street. The recipients are supposed to be entrepreneurs with great ideas who just can’t find financing in the private marketplace. The public image is one of apple pie, baseball and the American Dream.

But the reality is that the SBA is economically costly for taxpayers, and it creates a painful human cost for the workers it dislocates.

In 2014, we documented at Forbes, SBA lending to the wealthy lifestyle: Lamborghini auto dealerships, Rolex jewelers, world-class golf courses, private country clubs and even $142 million lent to businesses in ZIP code 90210, Beverly Hills, CA.

Now, we’ve published our OpenTheBooks Snapshot Oversight Report – Truth in Lending: The U.S. Small Business Administration’s $24.2 Billion Bad Loan Portfolio. Analyzing the SBA portfolio since 2000, we discovered 160,000 failed loans were charged-off to the tune of $17.5 billion. In other words, taxpayers absorbed those costs. Meanwhile, 1.4 million workers were dislocated when they lost their jobs within these failed companies. A few highlights:

• In some years, such as 2007, one of every three SBA loans was “charged-off” against taxpayers.

• We found that the Big Six Wheel ‘house odds’ at a Las Vegas casino are a better bet than large tranches of the SBA loan portfolio.

So who “gamed the most” from this taxpayer-backed boondoggle at the SBA?Nothing should rankle taxpayers more than $160 million lent to the nations country clubs and golf courses by the SBA since 2007. Many now-defunct clubs and courses received $61.4 million in SBA lending since 2000 and $44.6 million was charged-off against taxpayers.

Wealthy free-loaders that charged-off their loans include Canterbury Woods Country Club ($1.2 million), ranked as the #3 public golf course in New Hampshire; and Wildhorse Golf Course ($1.4 million), ranked as the best golf course in Yolo County, California and specially designed by course architect, Jeff Brauer.

Large corporations gamed the system by subdividing their businesses into “small business” franchises to qualify for the low interest, government guaranteed loans. Taxpayers – through the SBA – underwrote the national rollout and distribution plans of these companies. Many of these loans defaulted.

Here are some examples:

• Four national hotel chains defaulted on more than $350 million: Choice Hotels ($95.3 million), Holiday Inn ($88.4 million), Comfort Inn ($88.7 million), and Days Inn ($81.9 million).

• In the convenience store/gas station industry, more than $562 million was squandered in failed lending. Familiar names appearing throughout the list include Phillips, Conoco, Shell, Marathon, Citgo, Texaco, Chevron, Hess, and BP. Since when did a small business loan become a give-away to big oil?

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