Bacon's Rebellion

Democracy Thrives in Sunlight

SBA Loans for Pet Grooming

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by

James A. Bacon
in

Sheila and Kevin Nelson are obviously good at what they do. Since purchasing Groomingdale’s, an established pet grooming business, in November, they’ve boosted sales six percent, as Joan Tupponce tells the story in today’s Richmond Times-Dispatch. I wish the Nelsons all the luck in the world. I like to see small businesses succeed, especially in a heart-tugging instance like this: The flexibility of the business allows the couple to schedule appointments around the needs of their oldest daughter, who has cerebral palsy

But I really do wonder: Was there a public policy justification for the Small Business Administration to finance the Nelsons’ takeover of the business with $175,200 in loans?

As the SBA says on its website, it was formed in 1953 to “aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation.”

How did financing the Nelsons’ business “maintain and strengthen the overall economy of the nation”? Groomingdale’s had been in business since 1992. In other words, the SBA-guaranteed loans helped finance the purchase of an existing pet grooming business by a new owner. Are the owners creating new jobs or expand the tax base? Does the business serve new markets? Does it stimulate exports? Is it advancing a new technology? Does the enterprise complement, and help grow, a strategically important business cluster?

With Wall Street firms collapsing, with the federal government committing itself to gazillion-dollar bailouts of mortgage-securitization giants Freddie Mac and Fannie Mae, with the U.S. financial system imploding, foreign investors withdrawing their capital and lenders trimming their sales, is a pet-grooming service the kind of business into which the United States should be funneling scarce investment capital? Nothing personal against the Nelsons, whom I’m sure are wonderful people, but I reaaalllly don’t think so.

(This blog entry was adapted from a post on R’Biz.)

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3 responses to “SBA Loans for Pet Grooming”

  1. Anonymous Avatar
    Anonymous

    Jim,
    You conservative curmudgeon!

    What’s wrong with pet grooming? It’s something like a $3 billion business. You are you to say it doesn’t fit national security needs? Does human grooming? Open-sourced controls for HVAC? Do we really need those?

    Gee, until Sunday, America’s financial institutions could get help from the feds for brokering their buyouts or their bailouts (Bear STearns, Countrywide, Fannie and Freddie.) In the latter case, the two top execs will get something like $24 million in personal parachutes. What don’t you turn your critical faculties towards that rather than sinking your teeth into the heels of a couple of small business folk?

    Also, while we’re at it, are Fannie and Freddie relavant? If memory serves, the former was a New Deal prop-up agency and the latter was founded in the 1960s to help LBJ pay for his ill-thought-out Vietnam adventure.

    I think you should be aiming a little higher.

    Your friend,

    Peter Galuszka

  2. Bob Avatar
    Bob

    To summarize:

    1. It’s bad to loan money to a small mom & pop business. Although such businesses often go down the tubes, they usually circle the drain slowly and most of the loan will likely be repaid.

    In FY06, SBA direct loans defaulted 20% of the time. Loan guarantees failed 5% of the time (for a total of loss rate of 5.6%). Reporters never get the distinction between a loan and a loan guarantee, so it's unclear whether it's 80% or 95% likely that the loan will be repaid. SBA data pdf

    2. It’s good to give $1.6 billion in commonwealth and federal loans/guarantees/grants to Transurban to add tolls to existing roads. Because a company with a net annual operating loss of $140 million is surely going to pay the money back, right? And there’s no way that the whole project is built on a bubble that’s about to burst, right?

    Oh, right, creating congestion by tolling I-95/395/495 is a “public good” because it will discourage people from living outside the urban utopian commune.

  3. Anonymous Avatar
    Anonymous

    Why does the urban utopian commune need the subsidy of discouraging people from living out side of it?

    If congestion tolling creates a public good, how are the private losses offset by th epublic gains?

    RH

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