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Working Paper
SBA-loan guarantees and local economic growth
Increasingly policymakers are looking to the small business sector as a potential engine of economic growth. Policies to promote small businesses include tax relief, direct subsidies, and indirect subsidies through government lending programs. Encouraging lending to small business is the primary policy objective of the Small Business Administration (SBA) loan-guarantee program. Using a panel data set of SBA-guaranteed loans we assess whether SBA-guaranteed lending has an observable impact on local and regional economic performance.
Working Paper
On government intervention in the small-firm credit market and its effect on economic performance
In this paper we empirically test whether the Small Business Administration?s main guaranteed lending program?the 7(a) program?has a greater impact on economic performance in low-income markets than in others. This hypothesis is predicated on our previous research (Craig, Jackson, and Thomson 2007b), where we investigate aggregate SBA guaranteed lending. In that research we found that the overall impact of SBA guaranteed lending on economic performance is significant and positive in low-income markets.
Working Paper
Small-firm credit markets, SBA-guaranteed lending, and economic performance in low-income areas
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 ...
Working Paper
Small firm credit market discrimination, SBA-guaranteed lending, and local market economic performance
We empirically test whether SBA-guaranteed lending has a greater impact on economic performance in markets with a high percentage of potential minority small businesses. This hypothesis is predicated on priors related to three overlapping assumptions. These three assumptions are: (1) The classic type of credit rationing developed in the seminal paper by Stiglitz and Weiss (1981) is more likely to occur in markets with a higher per capita percentage of minority small businesses because such markets are more likely to have more severe information asymmetry problems, (2) SBA-guaranteed lending ...
Working Paper
The importance of financial market development on the relationship between loan guarantees for SMEs and local market employment rates
We empirically examine whether a major government intervention in the small-firm credit market yields significantly better results in markets that are less financially developed. The government intervention that we investigate is SBA-guaranteed lending. The literature on financing small and medium size enterprises (SMEs) suggests that small firms may be exposed to a particular type of market failure associated with credit rationing. And SMEs in markets that are less financially developed will likely face a greater degree of this market failure. To test our hypothesis, we use the level of bank ...
Working Paper
On SBA-guaranteed lending and economic growth
Increasingly, policymakers are looking to the small business sector as a potential engine of economic growth. Policies to promote small businesses include tax relief, direct subsidies, and indirect subsidies through government lending programs. Encouraging lending to small business is the primary policy objective of the Small Business Administration (SBA) loan-guarantee program. Using a panel data set of SBA-guaranteed loans we assess whether SBA-guaranteed lending has an observable impact on local and regional economic performance.
Discussion Paper
Does government intervention in the small-firm credit market help economic performance?
The guaranteed lending programs of the Small Business Administration (SBA) are large and growing rapidly. The SBAs fiscal year 2008 performance budget calls for $25 billion in guaranteed loans for small businessesa new record for the agency. Some critics of SBA programs suggest they do not help small businesses or overall economic performance. Other critics suggest that these programs unfairly benefit the financial institutions that participate in SBAs guaranteed lending programs. While very little serious empirical evidence exists on whether the net economic impact of the SBAs guaranteed ...
Working Paper
The security issue decision: evidence from small business investment companies
Using a unique transactions-level dataset, this paper examines the investment choices of small business investment companies (SBICs), which are private venture capital firms licensed and regulated by the U.S. Small Business Administration (SBA). SBICs make debt and equity investments in small businesses, and we seek to explain their security choices. We focus on factors suggested by asymmetric information and contracting theories of security choice. Overall, our results are consistent with the predictions of contracting theory, although certain aspects of our results also support asymmetric ...
Journal Article
Are SBA loan guarantees desirable?
Over the last 10 years, the Small Business Administration has been responsible for well over $100 billion in small business credit extensions, more than any single private lender. This Commentary explores the motivations for such a large investment of taxpayer dollars.