By Andrew Miller
Plenty of small businesses have taken, or considered, a loan from the Small Business Administration.
Although most are unaware of the corruption scandal that helped create the SBA.
Before the SBA existed, the federal government’s main lender was called the Reconstruction Finance Corporation. President Herbert Hoover created it in 1932 to fight the Great Depression.
For a while the RFC did serious work, propping up mostly banks and railroads. Its intended purpose was lending to businesses that couldn’t get credit anywhere else.
By the postwar years, it had a different reputation.
Between April 1950 and May 1951, a Senate subcommittee chaired by Arkansas Senator J. William Fulbright investigated how the RFC decided who got money.
The subcommittee’s report was titled “Favoritism and Influence.” That’s exactly what was found.
Far too many RFC loans were going to companies no ordinary lender would touch. For example, a struggling oil company, a failing automaker, and a maker of prefabricated metal houses that couldn’t stay afloat.
What these companies lacked in fundamentals, they made up for in influence.
The influence often came from Congress itself. Members routinely wrote the RFC urging it to approve certain loans, and the agency listened.
When the subcommittee started pulling those letters from the files, it found hundreds of them.
Some were even signed by the very senators now running the investigation.
Paul Douglas of Illinois admitted he had urged three loans on the RFC in his early years. One of them to the distressed Waltham Watch Company. “I think now,” he said, “that it was improper.”
The White House did not take the scrutiny well. President Truman’s staff pulled the senators’ own RFC correspondence from the files. The subcommittee read it as a warning, but the White House said the President had only wanted the letters to help plan a reorganization.
It became part of a larger picture. By 1952, the RFC was one of several scandals hanging over Truman’s Democrats. So, Republicans made the ‘mess in Washington’ a campaign theme.
The scandal helped Eisenhower become the next President.
President Eisenhower didn’t waste time cleaning up. On July 30, 1953, he signed the Small Business Act. It abolished the RFC and created the Small Business Administration to take its place.
The SBA would be an agency meant to run on eligibility instead of influence.
That was 73 years ago. The RFC is long gone. The agency built to replace it is still here.
P.S. No connections required. Just someone who knows where to look. Let’s talk about your funding.