Bel Air loan program is ill-advised [Editorial]

A point that seems to bear repeating, because it just doesn't seem to be getting through, is that the government shouldn't be in the business of making business loans.

It comes up again because last week the Bel Air Town Commissioners approved a $44,000 loan with a 10-year term and an interest rate between 2 and 2.5 percent to the proprietors of a planned cookie bakery business on Main Street.

Cookies are good. Bakeries are good. Businesses on Main Street are good. And, if you can get one, a low-interest business loan is good.

This isn't a bad deal because of what it's bringing. It's a bad idea because banks and other financial institutions make loans, at least in theory, based on a key determining factor: whether they can reasonably expect to be paid back with interest. Generally, when a bank makes a loan, the bigger the risk, the higher the interest rate, on the theory that bigger payments upfront will offset any loss that comes if a business venture fails.

In this instance, the loan is, as one town official put it, "a little bit risky," yet the interest rate is very favorable. As it stands, either the town is at risk of losing a chunk of the money it put out, or the business receiving the loan will have an edge over the competition, thanks to the backing of the government and will be successful at the expense of another business that doesn't get such backing.

This is bad public policy. The cookie business can't be faulted for applying for a low-interest, low risk loan. Going with low cost options is just good business practice. Fault lies with the governments of both Bel Air, which makes such loans, and the state government, which puts up the money and encourages such unnecessary efforts.

Let's make this as simple as possible: Banks can't and shouldn't collect taxes, get rid of the trash, fix the streets, provide police protection, etc. And governments, including Bel Air's, shouldn't make loans, no matter how free that state money seems.

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