Small Business Lending in Financial Crises: The Role of Government-Guaranteed Loans*

John Hackney

Review of Finance, 2023, vol. 27, issue 1, 247-287

Abstract: This paper examines whether the presence of government-guaranteed lenders helps alleviate small business financial constraints during financial crises. The results indicate that during the 2007–09 financial crisis, areas with a greater share of Small Business Administration 7(a) lenders experienced: (1) a 2.2% increase in small business loan volume, (2) a 3.7% increase in small firm employment and 3.5% increase in establishments, and (3) lower loan default rates. Bank–county–year analysis suggests that SBA banks increase their share of lending when they are capital-constrained, and when local median income is lower. Instrumental variable analysis utilizing SBA program characteristics confirms the baseline results. The findings suggest that targeted government support can play a beneficial role in the presence of private credit market frictions, especially when bank capital is limited and small business financial constraints are severe.

Keywords: Small business; Financial crisis; Financial constraints; Government-guaranteed lending (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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