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

97 Pages Posted: 24 Nov 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: September 29, 2015

Abstract

We use the Federal Reserve’s 2007, 2009 re-interview of 2007 respondents, and 2010 Surveys of Consumer Finances (SCFs) to study how small businesses owned and actively managed by households fared during those turbulent years. Even though the surveys contain extensive data on a broad cross-section of firms and their owners, to the best of our knowledge this is the first paper to use these SCFs to study small businesses. We find that the financial crisis and the Great Recession severely affected the vast majority of small businesses, including tight credit constraints. We document complex interdependencies between the finances of small businesses and their owner-manager households, including a more complicated role of housing assets than reported previously. We find that workers who lost their job during the recession responded in part by starting their own small business, and that factors related to the survival of a small business are hard to identify. Our results support 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 factors associated with the creation, survival and failure of small businesses.

Keywords: Small Business, Entrepreneurship, Great Recession, Credit Constraints

JEL Classification: D12, D22, G21, L25, L26

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 (September 29, 2015). FDIC Center for Financial Research Paper No. 4. Available at SSRN: https://ssrn.com/abstract=2694751 or http://dx.doi.org/10.2139/ssrn.2694751

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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