Incrementality of SME Loan Guarantees

Allan Riding (), Judith Madill and George Haines

Small Business Economics, 2007, vol. 29, issue 1, 47-61

Abstract: In many countries, loan guarantee programs are important elements of government policy with respect to small- and medium-sized enterprises (SMEs). If loan guarantee schemes are to be effective, a majority of firms obtaining assistance through such a scheme ought not to be able to obtain financing from existing sources: a property known as incrementality or additionality. This paper describes a new approach to measuring incrementality. This work uses a two-stage process to estimate the incrementality of loans made under the terms of the Canada Small Business Financing (CSBF) program. First, a logistic regression-based model of loan outcomes (essentially a credit-scoring model) is estimated based on a large representative sample of SMEs. The resulting model was consistent with prior expectations and exhibited high levels of goodness-of-fit. The model was then employed to classify a sample of firms that had received loans under the terms of the loan guarantee scheme. Incremental loans ought to be classified as “turndowns” by the model; hence the proportion of loan guarantee recipients that the model classified as turndowns is a direct measure of incrementality. For the CSBF loan guarantee program incrementality was estimated (with 95% confidence) as 74.8±9.0%. Copyright Springer 2007

Keywords: additionality; incrementality; small business; loan guarantees; G18; G28; M13; O17 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (31)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:sbusec:v:29:y:2007:i:1:p:47-61

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DOI: 10.1007/s11187-005-4411-4

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