You don’t have to do anything shady to end up with a situation where banks would clearly end up approving the least amount of applications, for the maximum loan amount, for the wealthiest applicants.
Our congress left it up to PRIVATE businesses, just like yours and mine, to decide to make their loan officers choose between processing say 200 applications a day for 10k each equaling $2 million dollars or select 1 excellent prospective applicant for $2 million. As a business owner which one would you do?
As a bank why in the world would I ever chose to make 200 small loans, making all my employees do all this charity work, answer telephone lines, and clog up the system when my business model as a bank is to be as efficient as possible in earning a profit? It could even actually end up costing your business money to process 200 application for $2 million as opposed to just 1 for the same amount. This is basic business common sense our representatives lack.
Congress is clueless. If they wanted to rely on private banks to do charity work for the government then a simple bonus to loan officers or banks for the FIRST 10k loaned out or for the grant itself, would then encourage banks to process as many applications as possible, as opposed to what makes business sense currently: fewest applications, largest loans. That would have fixed this problem.
Do not blame banks or the SBA. Banks are businesses just like everyone else. The government using banks and asking them to do charity work was a mistake if you don’t ensure it makes sense for them to do such a large volume of charity work.
Disclaimer: This is a guest post and it doesn’t necessarily represent the views of IWB.