Banks Dragging Their Feet In Getting Stimulus Loans To Small Businesses

ap0810030154761The New York Times reported today that a stimulus package program meant to provide financial assistance to small businesses is off to a slow start, because “many banks, including some of the largest, appear reluctant to take part“:

For example, Wells Fargo, one of the largest Small Business Administration lenders, has received 700 to 800 completed applications, said Tom Burke, the senior vice president overseeing small-business loans at Wells Fargo, but has approved only “several dozen.”

Overall, the program has $255 million, enough to make about 10,000 loans of up to $35,000 each. However, only 1,127 loans, totaling $36.8 million, have been extended thus far.

The Small Business Administration, which is overseeing the program, maintains that it is “on track,” but the Times noted that “some in the banking industry say the banks are moving slowly because they have little incentive.”

This program seems to be headed down the same road as the administration’s mortgage modification program. The banks don’t see the upside to participating, and have no downside to dragging their feet. And again, its the big banks that received TARP money, like Wells Fargo, who are making the least progress.

If the administration is going to count on the banks as the middlemen in this program, it needs to find a way to prod them, or else set up some sort of direct lending program that circumvents the banks. As Douglas McIntyre put it at 24/7 Wall Street:

The Administration may not feel comfortable asking banks that it saved to provide funds to enterprises where they could lose money. There is nothing unreasonable about that. What is inappropriate is to avoid the issue of how banks can be given a reasonable incentive to do the government’s work because the government has the capital but not the tools to carry out programs which are essential to the economic recovery.