Currently the Government does not make loans directly to businesses. The SBA, a well known government institution, does not make loans directly. The SBA only guarantees loans that banks make. As long as the banks follow certain specific guidelines that are set by the SBA, then the SBA guarantees 80% of the loan in case of default, which allows the banks to feel comfortable and secure in making the loans.
However, should the Government begin making loans directly to small businesses? There are some reasons to consider doing this. During the time the Government was bailing out the banks and trying to get the economy going, they wanted small businesses to start getting loans. So the Government gave billions to banks with the instructions that the banks would begin lending the funds out. By many accounts, much of the money was not lent to small businesses, but rather hoarded by the banks.
The Government should consider starting it’s own direct lending department. Fully credible loan officers could be hired and the department could be staffed. Critics might well say that the last thing the economy needs is more Government intervention in the economy and more Government control.
However, if the Government identifies certain industries they want to lend to, then currently they have to ask the banks to focus on those industries and there are no assurances the banks will do so. Direct lending would eliminate the middle man. Even though the Government would be lending themselves, simply eliminating large corporations in the middle of the process should speed things up dramatically.