TARP for Small Businesses: Theory Vs. Reality

The government is now floating the idea of giving small businesses money from the Troubled Asset Relief Program.

The Obama administration is working on a plan that would make available funds from the $700 billion banking-system bailout package to millions of small businesses struggling to survive the recession, FOX News has confirmed.

Gene Sperling, a top adviser to Treasury Secretary Tim Geithner, developed the idea of using funds from the Troubled Asset Relief Program (TARP) to help small businesses as part of a department-wide push to generate ideas to pump life into this ailing part of the economy. The concept is to use TARP funds to increase Small Business Administration loans that are obtained when the government backs 90 percent of a bank loan.

It is unclear how much TARP money might be involved. Of the $700 billion appropriated, roughly $127 billion remains. The SBA has authority this year to provide $17.5 billion in loans to small businesses. According to agency records, the SBA provided $6 billion in loans through June.

Now, small businesses are a sort of third rail in our society. No politician wants to be against helping small business owners. So, it's likely this policy idea will be met with little resistence, at least while it's still in concept. The problem is that while this sounds good in theory, in reality this is a total mess. There's about 27 million small businesses in the U.S. if you consider a small business as having less than 500 employees.

So, how do you figure out who gets what? If you give each small business $1000, that's $30 billion. Ten Thousand for each business is $300 billion. So, we simply don't have enough to give everyone money.

Now, we get into reality. If the government gave money based on need, then the government would be rewarding failure. It would subsidize the weak and make things difficult on the stronger small businesses. If the government did in other random ways, that would lead to favoritism. (just see the PPIP program for that) If you gave everyone the same amount, that would mean that the smallest of small businesses would get the better part of it.

There's another problem. This is the Troubled Asset Relief Program. It's not the Troubled Small Business Relief Program. By giving money to the automakers the government already moved money to things they weren't meant for. In fact, the program was supposed to buy "toxic assets" from banks. It has never been used as it was passed. We are, after all, a nation of laws. This law wasn't intended to bail out small businesses. It wasn't even intended to bailout banks. It was supposed to buy "toxic assets" from the banks. The more time passes, the more it does nothing it was intended. If the president wants to provide a bailout for small businesses, then have him go to Congress and pass another law. TARP is not that law.

If the president really wants to give small businesses relief, then he needs to demand an across the board tax cut. That would put more money into the pockets of small business owners themselves, and into the pockets of the consumers that frequent them.