Does Government Intervention in the Small-Firm Credit Market Help Economic Performance?
15 Pages Posted: 30 Jul 2007
Date Written: August 2007
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: Suggested Citation