Does Government Intervention in the Small-Firm Credit Market Help Economic Performance?

15 Pages Posted: 30 Jul 2007

See all articles by Ben R. Craig

Ben R. Craig

Federal Reserve Bank of Cleveland; Deutsche Bundesbank

William E. Jackson

Culverhouse College of Business, University of Alabama

James B. Thomson

University of Akron

Date Written: August 2007

Abstract

The guaranteed lending programs of the Small Business Administration (SBA) are large and growing rapidly. The SBA's fiscal year 2008 performance budget calls for $25 billion in guaranteed loans for small businesses - a new record for the agency. Some critics of SBA programs suggest they do not help small businesses or overall economic performance. Other critics suggest that these programs unfairly benefit the financial institutions that participate in SBA's guaranteed lending programs. While very little serious empirical evidence exists on whether the net economic impact of the SBA's guaranteed lending programs is positive or negative, a few recent studies provide some insight into the question. In general, they suggest a small positive impact of the SBA's programs on economic performance. However, the results are very tentative and further research is needed to declare a more definitive position. We provide a general overview of the SBA's guaranteed lending programs and summarize the results of these studies.

Keywords: small business, economic growth, loan guarantees, credit rationing, relationship lending

JEL Classification: G38, H81, O16

Suggested Citation

Craig, Ben R. and Jackson, William E. and Thomson, James B., Does Government Intervention in the Small-Firm Credit Market Help Economic Performance? (August 2007). FRB of Cleveland Policy Discussion Paper No. 22. Available at SSRN: https://ssrn.com/abstract=1003298 or http://dx.doi.org/10.2139/ssrn.1003298

Ben R. Craig

Federal Reserve Bank of Cleveland ( email )

PO Box 6387
Cleveland, OH 44101
United States
216-579-2061 (Phone)
216-579-3050 (Fax)

Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

William E. Jackson (Contact Author)

Culverhouse College of Business, University of Alabama ( email )

Tuscaloosa, AL 35487-0225
United States
205.348.6217 (Phone)
205.348.6695 (Fax)

James B. Thomson

University of Akron ( email )

Akron, OH 44325-4803
United States

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