Small Businesses and Small Business Finance During the Financial Crisis and the Great Recession: New Evidence from the Survey of Consumer Finances

FEDS Working Paper No. 2015-039

http://dx.doi.org/10.17016/FEDS.2015.039

96 Pages Posted: 21 Jun 2015

See all articles by Arthur B. Kennickell

Arthur B. Kennickell

Federal Reserve Board - Department of Research & Statistics

Myron L. Kwast

FDIC, Division of Insurance and Research

Jonathan Pogach

FDIC, Division of Insurance and Research

Multiple version iconThere are 2 versions of this paper

Date Written: February 27, 2015

Abstract

We use the Federal Reserve's 2007, 2009 re-interview of 2007 respondents, and 2010 Surveys of Consumer Finances (SCFs) to examine the experiences of small businesses owned and actively managed by households during these turbulent years. This is the first paper to use these SCFs to study small businesses even though the surveys contain extensive data on a broad cross-section of firms and their owners. We find that the vast majority of small businesses were severely affected by the financial crisis and the Great Recession, including facing tight credit constraints. We document numerous and often complex interdependencies between the finances of small businesses and their owner-manager households, including a more complicated role of housing assets than has been reported previously. We find that workers who lost their job responded in part by starting their own small business, and that factors correlated with the survival of a small business differed greatly depending upon whether the firm was established or new. Our results strongly reinforce the importance of relationship finance to small businesses, and the primary role of commercial banks in such relationships. We find that both cross-section and panel data are needed to understand the complex issues associated with the creation, survival and failure of small businesses.

Keywords: Great Recession, Small business

JEL Classification: L26, L11, L25

Suggested Citation

Kennickell, Arthur B. and Kwast, Myron L. and Pogach, Jonathan, Small Businesses and Small Business Finance During the Financial Crisis and the Great Recession: New Evidence from the Survey of Consumer Finances (February 27, 2015). http://dx.doi.org/10.17016/FEDS.2015.039. Available at SSRN: https://ssrn.com/abstract=2620748 or http://dx.doi.org/10.2139/ssrn.2620748

Arthur B. Kennickell (Contact Author)

Federal Reserve Board - Department of Research & Statistics ( email )

20th & C. St., N.W.
Washington, DC 20551
United States
202-452-2247 (Phone)
202-452-5295 (Fax)

Myron L. Kwast

FDIC, Division of Insurance and Research ( email )

550 17th Street NW
Washington, DC 20429
United States

Jonathan Pogach

FDIC, Division of Insurance and Research ( email )

550 17th Street NW
Washington, DC 20429
United States

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