Do SBA Loans Create Jobs? Estimates from Universal Panel Data and Longitudinal Matching Methods
40 Pages Posted: 24 Oct 2012
Date Written: September 1, 2012
This paper reports estimates of the effects of the Small Business Administration (SBA) 7(a) and 504 loan programs on employment, using a complete list of all SBA loans linked to annual data on all U.S. employers from 1976 to 2010. The estimation approach combines firm fixed effect regressions with matching, where the control groups are matched exactly on firm age, industry, year, and pre-loan size, as well as on propensity scores (kernel-weighted by distance) as a function of four years of employment history and other variables. The results imply positive average effects on loan recipient employment of about 25 percent, or 3 jobs at the mean. Including loan amount, we find little or no impact of loan receipt per se, but an increase of about 5.4 jobs for each million dollars of loans. When focusing on loan recipients and control firms located in high-growth counties (average growth of 22 percent), places where most small firms should have excellent growth potential, we find similar effects, implying that the estimates are not driven by differential demand conditions across firms. Results are also similar regardless of distance of control from recipient firms, suggesting only a very small role for displacement effects. In all these cases, the results pass a “pre-program” specification test, where controls and treated firms look similar in the pre-loan period. Other specifications, such as those using only matching or only regression, imply somewhat higher effects, but they fail the pre-program test.
Keywords: small business, job creation, finance, SBA, loans, employment, matching, panel data
JEL Classification: G21, G28, H32, H81, J23, L52
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