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

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Author Info
Ben R. Craig
William E. Jackson, III
James B. Thomson

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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.

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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0601.

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Date of creation: 2006
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Handle: RePEc:fip:fedcwp:0601

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Keywords: Small business - Finance Small Business Administration Government-sponsored enterprises

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