Small-firm credit markets, SBA-guaranteed lending, and economic performance in low-income areas

RePEc Short ID: pcr197
ORCID iD: 0000-0003-0667-1422

Craig, Ben R.; Jackson, William E.; Thomson, James B.

doi:10.26509/frbc-wp-200601

Working Paper

Small-firm credit markets, SBA-guaranteed lending, and economic performance in low-income areas

Abstract: SBA guaranteed-lending programs are one of many government-sponsored market interventions aimed at promoting small business. The rationale for providing SBA loan guarantees is often based on the argument that they reduce credit rationing in low-income markets for small business loans. In this paper we empirically test whether SBA-guaranteed lending has a greater impact on economic performance in low-income markets. Using local labor market employment rates as our measure of economic> performance, we find evidence consistent with this proposition. In particular, we find a positive and significant correlation between the average annual level of employment in a local market and the level of SBA-guaranteed lending in that local market. And the intensity of this correlation is relatively larger in low-income markets. Indeed, one interpretation of our results is that this correlation is positive and significant only in low-income markets. This result has important implications for public policy in general and SBA-guaranteed lending in particular.

Keywords: small business finance; Small Business Administration; Government-sponsored enterprises;

https://doi.org/10.26509/frbc-wp-200601