Forbes - The Small Business Administration's Welfare for the Wealthy 16_sba

December 4, 2014 06:30 AM
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Private country clubs, marinas, ski lodges, Napa/Sonoma Valley wineries, aesthetic enhancement clinics, Hollywood limousine chauffeurs, Rolex jewelers,  luxury pet resorts, Lamborghini auto dealers, venture capital companies, and much more receive billions of dollars in SBA subsidized lending.

The motto of the Small Business Administration (SBA) supports entrepreneurial grit and the little guy: “The SBA helps Americans start, build and grow businesses.” Yet, proponents of Small Business Administration (SBA) loan programs will be hard pressed to justify many of the examples cited within our recently released Federal Transfer™ Report- SBA Loans to the Wealthy Lifestyle.

 

In America, we should never demonize success, but we don't need to subsidize it either. Loans to luxury limousine companies, private country clubs, Beverly Hills diamond suppliers, and upscale destination resorts in Palm Beach, Cape Cod and Lake Tahoe do little to advance the common good.

SBA lending is supposed to “to aid small businesses which are unable to obtain financing in the private credit marketplace.”  Yet, since 2007, there have been nearly 35,000 “small business” loans between $1 million and $5 million, many to companies who may have been able to obtain credit elsewhere.

SBA loans and guarantees in excess of $1 million are common across America.  In fact, there’s a loan of this amount or greater for every three communities across America.

But the deeper, more systemic, problem with the SBA is that the federal government just isn’t very good at picking winners and losers.  When the SBA approves a loan, taxpayer money is used to pit one taxpaying business against another. Who decides?  Not the market, but SBA bureaucrats who clearly have refined tastes.

Consider a few of the businesses that have been subsidized since 2007:

Four private country clubs including Horseshoe Bend Country Club, Marietta, GA ($5.0 million); Crystal Falls Golf Club, Dawsonville, GA ($4.3 million); Stafford Hills Club, Tualatin, OR ($4.3 million); and West Hills Country Club, Middletown, NY ($4.2 million). In fact, 48 exclusive clubs received $110 million in SBA lending.

High-end luxury jewelers including M.K. Diamonds & Jewelry, Beverly Hills, Ca ($3.894 million) and Bentrani Watches, Miami, FL ($5.0 million). $21 million flowed to Rolex jewelers and another $37 million to other upscale shops.

Luxury pet resorts including Wagmore Pet Resort, Boerne, TX ($3.9 million) Barkaritaville Pet Resort, Corpus Christi, TX ($1.4 million) and Animal House Pet Hotel, Atlanta, GA ($2.0 million).We love our dogs, but should taxpayers be spending millions on state-of-the-art pet resorts?

SBA also funded aesthetic enhancement- plastic surgery clinics ($41 million), Napa Valley wineries ($19 million) and luxury beauty spas ($92 million).   The SBA didn’t leave out high-end limousine companies.  Nearly $18 million flowed to 14 high-end limousine companies including Diva Limousine, Burbank, Ca ($2.097 million) that has chauffeured  Hollywood stars and starlets to functions such as the Academy Awards, Emmys, Grammys and Golden Globes.

Thanks, SBA, for keeping limousine rates artificially low for the Hollywood elite by keeping tax rates artificially high for the middle class. Great work.

Beyond these egregious examples the SBA’s private equity loan subsidy allowed $9.2 Billion to flow to the some of the most successful investment banking and private investor funds in the world.  Here’s how that works.  The SBA provides up to 3x leverage on limited partner invested capital helping power 20% plus investment returns.  Without the SBA, the same firms engage in this business. But, returns are much higher with government subsidy. Recipients include bankers like Hercules Technology, Palo Alto, Ca ($298.8 Million); BB&T Capital, Winston Salem, NC ($278.8 Million); Gemini Investors, Wellesley Hills, MA ($233.6 Million); Fifth Street Mezzanine Partner, White Plains, NY ($225 Million); and Capital South Partners, Charlotte, NC ($188.5 Million).

The public should be asking some hard questions:  How were these industries and subsidies chosen? What’s the public purpose to ask working and middle class citizens to subsidize these businesses? 

In January, 2012, President Barack Obama elevated the Administrator of the Small Business Administration to a cabinet level position. From the Obama cabinet, we stand ready to listen.

Is Adam Smith’s guiding hand now the gilded hand of government favor? Who in your hometown won the SBA $1 million subsidy? Click here to slice, dice and display the list of 35,000 loans by state, town, recipient, or sort by amount at OpenTheBooks.com.

Notice:  Adam Andrzejewski is the founder of OpenTheBooks.com a project of American Transparency 501(c)3. 

 

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