Small Business Borrowing and the Bifurcated Economy: Why Quantitative Easing Has Been Ineffective for Small Business

Michael J. Chow and William C. Dunkelberg

Business Economics, 2013, vol. 48, issue 4, 214-223

Abstract: In the early years following the financial collapse, federal officials and others believed that banks were not making loans to creditworthy small firms, who have accounted for most of the job creation in the United States in recent decades. Acting on this belief, a number of programs were created to increase bank lending to small firms. Overall, however, the data collected since the 2007/8 financial crisis suggest that the explanation for slow loan growth in the small business sector is not a result of supply constraints but rather a result of anemic loan demand among small firms. Thus, recent programs intended to increase small business borrowing through easing credit supply were doomed to fail. The weak demand for credit among small firms is representative of the sluggish performance of the small business economy postrecession, a marked contrast to the robust performance of larger firms and a reflection of a bifurcated economy.

Date: 2013
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