Conservatives used to call the Small Business Administration a giveaway, and regularly called for its elimination. But the agency is popular among Trump Republicans, who believe government ought to help business owners. And the program is continuing to grow.
So I reviewed 29,000 SBA loan approvals in the Philadelphia, South Jersey and Wilmington areas since 1990, seeking trends for how the program is evolving. The number of loans is smaller but the dollar amounts are rising under Trump, as they did under Obama. More grants are going to arts groups and health care while salad places and general merchandise stores are especially dismal at repaying loans. Liquor establishments, veterinarians and farmers are among those extremely likely to cover their debts.
"Everybody wants small business to succeed," said Linda McMahon, the former World Wrestling Entertainment executive whom President Trump named to run the SBA. She recently visited three SBA-backed businesses — a Hammer & Stain do-it-yourself workshop in Holland, Steve's Prince of Steaks in Northeast Philly, and Victory Gardens in Warminster — marking her first public visit since she was confirmed by a bipartisan Senate vote.
McMahon and her husband, Vince, taught Trump a lot of what he knows about promotion, working crowds and TV: the future president learned bold gestures, simple narratives, big talk, and "a sense of relative truth and suspension of disbelief" when the McMahons staged pro wrestling matches to lure gamblers to his old Atlantic City casinos; Trump later hogged the camera at televised WWE matches, Lavie Margolin notes in his self-published book TrumpMania.
Among other duties, McMahon and her local appointees, including Bucks County lawyer Michelle Christian, who runs the mid-Atlantic office, are cheerleaders for the Trump tax cuts they hope will encourage small businesses to sell more, hire more and borrow more.
SBA programs guarantee loans against default. Bankers who put up with agency paperwork know that, if a small-business borrower can document a risk worth taking, the government will cover at least part of their losses.
SBA also works in plain sight: Whether its loans are paid in full, paying on schedule, or charged off as a loss for taxpayer bailout. These include the SBA's low-rate 7a small-business loans and 504 business real-estate loans, the agency's best-known programs.
Here are some highlights:
More money: In fiscal 2016, which ended in mid-2017, SBA-backed loans pumped $342 million into Philadelphia and its Pennsylvania suburbs, South Jersey and the Wilmington area. That's just below the record $344 million the previous year, and more than 10 times what SBA lent here in 1990 (not adjusted for inflation).
But SBA is not making as many loans as it used to — about 1,200 a year in the last two years in this region, half the level of the mid-2000s. The SBA raised its loan limits under Obama; it now makes bigger loans, and fewer of them.
Big bank pullout: Big national banks that used to dominate the SBA wrote off long lists of bad loans in the Great Recession — more Philadelphia-area SBA loans defaulted in 2009 than were approved — and most have stayed away ever since.
Back in the 1990s, Wells Fargo and its Philadelphia predecessors — CoreStates, Fidelity, Meridian — made a third of all area SBA loans by dollar amount. Last year, it was less than 5 percent. PNC, which made more than 500 SBA loans in the region in 2006, has made fewer than 20 a year since 2013. Bank of America, once a major SBA lender, has nearly stopped.
The largest SBA lenders in the region now include Berkshire Bank, TD Bank, and Philadelphia-based Republic. Together, they share less than 20 percent of the market. Regional and local banks Citizens, M&T, WSFS, Beneficial, Bryn Mawr Trust and Sturdy Savings Bank have also embraced SBA lending here.
"Many of the nation's largest banks severely cut lending following the recession," says Harry Madonna, Republic's chief executive. But his bank "is taking a bit of a contrarian approach," and sees small-business lending as key to boosting Philadelphia's slow-growing regional economy.
Loan losers: At TD Bank, borrowers in the region have defaulted on $52 million in SBA guarantees since 1990, or 12 percent of the bank's approved SBA-backed lending in all that time. At PNC the cumulative loss is $48 million, or 18 percent.
Some of the highest default rates were recorded at Capital One, the Virginia-based credit card lender, where one-third of the region's SBA credits went bad.
Local banks show much lower loss rates — about 5 percent at Univest and WSFS, and 6 percent at Customers First and Royal Bank of Narberth (now part of Bryn Mawr Trust Co.)
Fewer stores, more medicine: Loans to retailers accounted for less than 10 percent of SBA loans in the region last year, down from more than 20 percent in the mid-2000s. Loans to health-care-related small firms have more than doubled since then, and now form the second-largest category, after restaurants and hotels. SBA loans to arts-related organizations and nonprofits in the area have nearly tripled since the mid-2000s.
Deadbeats: Since 1990, more than one-quarter of general-merchandise stores, management-consulting firms, and janitorial services have defaulted on their SBA loans.The overall default rate is 14.4 percent.
Beer, wine and liquor stores almost always pay back their bankers — defaults on 341 loans were under 4 percent. Bars were just under 12 percent, still below average.
By contrast, snack and soda bar defaults were at 22 percent (and the handful of salad restaurants, 25 percent). Gas stations, dry cleaning operations, trucking and fast-food restaurants also defaulted above average. So did full-serve restaurants, auto repair shops and beauty salons. The lowest default rates included veterinarians (less than 3 percent); medical and professional officers also paid at above-average levels.
Dying industries proved to be high risk: The only radio station, iron foundry and women's coat maker to win SBA guarantees failed to pay back their loans. Separately, half the 44 residential-property managers who got SBA loans defaulted. So did 21 of the 72 short-line railroads, and both casinos.