NCPA - National Center for Policy Analysis

Terminating the Small Business Administration

August 17, 2011

The Small Business Administration (SBA) was created by the Small Business Act of 1953.  The primary purpose of the SBA is to encourage lending to small businesses through government loan guarantees.  Other SBA activities include offering direct loans for disaster recovery and helping small businesses gain government contracts, say Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University, and Tad DeHaven, a budget analyst at the Cato Institute.

  • The SBA will cost taxpayers about $6.2 billion in 2011.
  • Annual outlays are typically closer to $1 billion, but the SBA has suffered higher than usual losses on its guaranteed loans in recent years, so the costs imposed on taxpayers have soared.
  • The SBA will guarantee almost $24 billion in new loans in 2011.
  • The share of guaranteed loans outstanding that the SBA -- and ultimately federal taxpayers -- is on the hook for is about $70 billion.

The SBA retains political support because it is a tool for policymakers to signal their support of small businesses.  At the same time, SBA supporters have cultivated a myth that being against the agency is equivalent to being against small businesses.  In reality, the great majority of American small businesses have thrived without government subsidies.  The SBA's lending programs benefit a relatively tiny number of businesses at the expense of taxpayers and the vast majority of businesses that do not receive government support.

Source: Veronique de Rugy and Tad DeHaven, "Terminating the Small Business Administration," Cato Institute, August 2011.

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