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
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: Suggested Citation