The Impact of the SBA Funding Programs on the Distance and Pricing of Loans to Small Businesses

61 Pages Posted: 15 Apr 2022 Last revised: 24 Jun 2023

See all articles by Manish Gupta

Manish Gupta

Nottingham University Business School

Steven Ongena

University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)

Date Written: March 31, 2023

Abstract

We model and test spatial price discrimination in Small Business Administration (SBA) 7(a) loans, where a federal guaranty neutralizes loan-specific risk. The SBA distinguishes between Preferred Lender (PLP) and non-PLP banks. While PLP take credit decisions on loan applications, the SBA takes the decisions for non-PLP. Our model predicts that only PLP banks charge nearby-firms higher rates than distant firms by appropriating the firms’ transportation savings from visiting rival banks. We find evidence consistent with this prediction. Further, while SBA’s technological improvements, starting in 2014, increase overall lending distance, PLP spatial pricing worsens.

Keywords: banking sector, competition, SBA, distance, loan rate

JEL Classification: G21, L11, L14

Suggested Citation

Gupta, Manish and Ongena, Steven R. G., The Impact of the SBA Funding Programs on the Distance and Pricing of Loans to Small Businesses (March 31, 2023). Swiss Finance Institute Research Paper No. 22-31, Available at SSRN: https://ssrn.com/abstract=4083683 or http://dx.doi.org/10.2139/ssrn.4083683

Manish Gupta

Nottingham University Business School ( email )

University of Nottingham
Jubilee Campus
Nottingham, NG8 1BB
United Kingdom

Steven R. G. Ongena (Contact Author)

University of Zurich - Department Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

NTNU Business School ( email )

Norway

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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