Bank Lending to Rural vs. Urban Firms in the U.S. Before, During, and After the Great Financial Crisis
70 Pages Posted: 3 Oct 2018
Date Written: July 30, 2018
Bank lending to small businesses plummeted during the financial crisis years of 2009 – 2010 (Cole, 2012) and remained at depressed levels through 2015, even as loans to big businesses spiked upwards (Cole, 2018). The current study analyzes data on small-business loan originations at the census-tract level collected by U.S. banking regulators to provide new univariate and multivariate evidence on whether banks made fewer loans to small businesses in rural as compared to urban areas; whether bank lending to small businesses located in rural areas was disproportionately affected by the financial crisis during 2008 – 2010; and, if so, whether such lending recovered during the post-crisis years 2011 - 2016. The analysis reveals that (1) banks did make fewer loans to small businesses in rural as compared to urban areas; (2) rural small businesses were, indeed, disproportionately hurt during the crisis years relative to urban small businesses, which also were hurt, but not as severely; and (3) rural small businesses have seen less of a recovery in lending during the post-crisis years than did their urban counterparts. These findings support efforts by policymakers and bank regulators to boost bank and non-bank small-business lending in rural areas.
Keywords: availability of credit, bank credit, bank lending, credit crunch, discrimination, disparate impact, entrepreneurship, financial crisis, rural, small business, urban
JEL Classification: G01, G21, G28, G32, H25, H8
Suggested Citation: Suggested Citation