Criticism of SBA loans in the Market

Wednesday, April 17, 2013

Criticism of SBA loans in the Market

SBA or Small Business Administration resembles a business solution aided by the federal government and lent to entrepreneurs and businessmen in order to start or expand a business project. The SBA system sounds facilitating. Well, to a greater extent, it is simply a facilitating business solution. In fact, being a federal loan it offers borrowers with easy bad credit loans.
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And the borrowers can avail the loan with easy debt repayment structure.  But, still, the SBA schemes face criticism. Being a borrower or seeker of this loan, you must understand ideas of these criticisms in order to be safe from the upcoming dangers. The detailed discussions are given below for you to understand the criticism of the SBA financial solution.

Criticism of SBA loans
The following are the criticisms associated with the SBA loan.
·         Dominating the credit market: the criticism here is actually derived from the questions of a pioneering body. The body named as Carlo Institute challenged this financial aid through a question. That question seeks justification of the federal government in matters of superseding the credit market. Basically, the SBA provides easy credit towards the borrowers. And to a larger scale has turned out to be the biggest business solution in the US. And that is the reason why the answer is being criticized as it holds the supreme place.
·         A tiny range: Cato also argues on the point that SBA lends money to a tiny number of businesses. This small selection of financing is never good for the total stimulation of the economy. At the same time, SBA forgets to take care of the larger proportion of operation projects, which are being dealt by the vast majority. The mission of SBA loans is to ensure the sustainability and stimulation of US economy, but, it might contradict with the unsecured loans allocation mechanism. This is because the majority of the US businessmen are deprived of this solution. 
·         Vast majority being deprived of the federal help: And this leads to another point. When the business is not desirable in the eyes of SBA, it would not get any federal help. Government helps business projects through the SBA financial solution. So, if the SBA finds a project ineligible, the federal government will not help that project.  Therefore, it is questionable how SBA is serving the economy towards development!
·         Representing corporate welfare: basically, the SBA represents a corporate welfare program for the banking industry. We get to know about it from the interest rates. In the year 2001 to 2010, the interest rates were 19.4%, and the amount of tax payment had been $6.2 billion in the year 2011. So, surely it is promoting a corporate echelon.

Author: Sushil Kumar

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