TARP Program Failed Small Business Lending

Businessman asking for bailout
A new report paid for by the Small Business Administration (SBA) suggests that the government bailouts for banks during the 2008 and 2009 financial crisis did not assist lending for small companies. Bailed-out banks cut their lending to small businesses more than other banks did, according to a paper released by Rebel Cole, a DePaul University economist.

After the financial crisis and multitudes of bank mergers, banks were less likely to loan money. Lending standards for SBA loans tightened and small businesses suffered greatly. So a solution was created: TARP.

The Troubled Asset Relief Program (TARP) was implemented by the U.S. government to purchase equity and assets from financial companies in order to fortify the financial sector. U.S. bank regulators funneled $200 billion in capital for more than 900 banks. The hope was to increase bank lending for small businesses, but that did not go as planned. The banks who received funding from TARP not only failed to increase their small lending programs, but they decreased it more than other banks. After the crisis, TARP banks reduced small business and SBA loans by 21 percent in comparison to other banks' 14 percent.

The report found that the decline in bank lending was significantly more severe for small businesses than for larger businesses. Bank lending to small firms, such as SBA loans, rose from $308 billion in June 1994 to $659 billion in June 2008. Exactly three years later in 2011, it had declined by nearly 18 percent to $543 billion. Bank lending as a whole rose from $758 billion in 1994 and peaked at $2.14 trillion in June 2008. Three years later it was nine percent lower at $1.96 trillion.

The TARP program failed small lending.

But then again, it was never really meant to stimulate small business lending. Boosting SBA loans was simply part of the cover of the TARP program. It was basically used to revive Wall Street and to save large corporations.

Banks do not need sweeping bailouts to boost loans; people just need to be approved for SBA loans. For many businesses, the only way they achieved a functioning business is through a small business loan. Policies that actually assist small businesses are needed, not large sweeping programs which project one goal, and provide another.

Although several years have passed since the program's implementation, business owners are still fearful of the future. 68 percent of small business owners are concerned about funding cuts for government contracts. Additionally, 62 percent are worried about funding reductions for SBA loans and counseling programs.

Banks are businesses, and the main goal for most businesses is to make money. By lending capital to small businesses, large banks lose money. Instead of lending out $10,000 to a new bike shop, or $50,000 to a local book store, big banks would rather solidify major multi-million dollar contracts. Less work and more money — win, win.  

But if it comes down to taxpayers funding the bailout, shouldn’t an important population of its people, business owners, get a say in where their money goes?

The economy has not fully recovered. But it doesn’t mean that all lending efforts should be ignored. Small businesses provide an economic backbone to the nation. Without them, the essence of the country would be dull and lifeless. The American Dream, although an unlikely prospect for the multitudes that strive after it, can still be attained. Business owners just need a little help getting there.