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If you, like me, are a Gen Y’er born during the Reagan years, there’s a possibility that you don’t know much about the SBA. The Small Business Administration was organized in 1953 in order to provide veterans and the service-disabled with access to federally-guaranteed financing options for small businesses. While it flourished in the decades following, it came under attack in 1993, when the Republican congress under the Clinton presidency threatened to shut it down. It lacked funds throughout the Clinton and Bush presidencies, and was frozen in 2004, but thanks to the recent TARP bill, the SBA is now up and running alongside AIG…to the glee of prospective small business owners, and the derision of larger ones.

What is ironic is that, while the SBA has a stigma of being overly social, unnecessary, anti-capitalistic and careless, the SBA is actually much less careless than many of the AIG-affiliated organizations that were bailed out. The anticipated default rate for the loans being purchased by the government is as high at 60%; for the agency, it is only 10%. The banks holding the toxic mortgages have a 100 percent loan backing from the package, while SBA remains at a mere 75%. What is most astonishing is that the lending requirements of the SBA are significantly higher and more strict than the “free market” counterparts in in question. So what grounds do the right have to criticize the struggling SBA?

It should be remarkably apparent from this small business loan update that the use of the term “free market” as it has been used over the recent generation of politicians has been something of a misnomer. “Free markets” are an excellent way of disguising policies that are specifically slanted for large special interests, and at the expense of smaller businesses. Despite the recent atmosphere of free marketeering, the period of government from Reagan to George W. Bush was actually marked by quite a bit of regulation; it just happened that they took the form of tariffs, monetary deregulation, and regulations that were designed to hurt small businesses more than large ones.

The lesson here is to always be cautious of the way an ideology is being used. Popular ideologies are often democratic ones, but they are also very complex. We should always be sure to hold our politicians to making sure they carry out the ideologies they preach in a fair and just manner.

This Business article was written by Mark Karavan on 1/5/2010