Small business lending in financial crises: The role of government-guaranteed loans

Review of Finance, forthcoming https://academic.oup.com/rof/advance-article/doi/10.1093/rof/rfac002/6510953

53 Pages Posted: 30 Nov 2016 Last revised: 1 Feb 2022

See all articles by John Hackney

John Hackney

University of South Carolina - Department of Finance

Date Written: June 1, 2018

Abstract

This paper examines whether the presence of government-guaranteed lenders helps alleviate small business financial constraints during financial crises. The results indicate that during the 2007-2009 financial crisis, areas with a greater share of Small Business Administration 7(a) lenders experienced: 1) a 2.2% increase in small business loan volume, 2) a 3.7% increase in small firm employment and 3.5% increase in establishments, and 3) lower loan default rates. Bank-county-year analysis suggests that SBA banks increase their share of lending when they are capital-constrained, and when local median income is lower. IV analysis utilizing SBA program characteristics confirms the baseline results. The findings suggest that targeted government support can play a beneficial role in the presence of private credit market frictions, especially when bank capital is limited and small business financial constraints are severe.

Keywords: Small Business, Financial Crisis, Financial Constraints, Government-Guaranteed Lending

JEL Classification: G01, G21, G28

Suggested Citation

Hackney, John, Small business lending in financial crises: The role of government-guaranteed loans (June 1, 2018). Review of Finance, forthcoming https://academic.oup.com/rof/advance-article/doi/10.1093/rof/rfac002/6510953 , Available at SSRN: https://ssrn.com/abstract=2876653 or http://dx.doi.org/10.2139/ssrn.2876653

John Hackney (Contact Author)

University of South Carolina - Department of Finance ( email )

1014 Greene Street
Columbia, SC 29208
United States

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