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Does government intervention in the small-firm credit market help economic performance?

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Listed:
  • Ben R. Craig
  • William E. Jackson
  • James B. Thomson

Abstract

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 lending programs is positive or negative, a few recent studies provide some insight into the question. In general, they suggest a small positive impact of the SBAs programs on economic performance. However, the results are very tentative and further research is needed to declare a more definitive position. We provide a general overview of the SBAs guaranteed lending programs and summarize the results of these studies.

Suggested Citation

  • Ben R. Craig & William E. Jackson & James B. Thomson, 2007. "Does government intervention in the small-firm credit market help economic performance?," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Aug.
    • Handle: RePEc:fip:fedcpd:y:2007:i:aug:n:22
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    File URL: http://www.clevelandfed.org/research/PolicyDis/pdp22.pdf
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    References listed on IDEAS

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    1. Kane, Edward J, 1977. "Good Intentions and Unintended Evil: The Case against Selective Credit Allocation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 9(1), pages 55-69, February.
    2. Ben R. Craig & William E. Jackson & James B. Thomson, 2005. "The role of relationships in small-business lending," Economic Commentary, Federal Reserve Bank of Cleveland, issue Oct.
    3. Berger, Allen N & Frame, W Scott & Miller, Nathan H, 2005. "Credit Scoring and the Availability, Price, and Risk of Small Business Credit," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 191-222, April.
    4. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-381, July.
    5. W. Scott Frame & Lynn Woosley, 2004. "Credit Scoring and the Availability of Small Business Credit in Low‐ and Moderate‐Income Areas," The Financial Review, Eastern Finance Association, vol. 39(1), pages 35-54, February.
    6. White, Lawrence J, 1982. "The Determinants of the Relative Importance of Small Business," The Review of Economics and Statistics, MIT Press, vol. 64(1), pages 42-49, February.
    7. Phillip Arestis & Michelle Baddeley & John S.L. McCombie (ed.), 2007. "Economic Growth," Books, Edward Elgar Publishing, number 3958.
    8. Ben R. Craig & James B. Thomson, 2001. "Federal Home Loan Bank lending to community banks: are targeted subsidies necessary?," Working Papers (Old Series) 0112, Federal Reserve Bank of Cleveland.
    9. Allen N. Berger & W. Scott Frame, 2007. "Small Business Credit Scoring and Credit Availability," Journal of Small Business Management, Taylor & Francis Journals, vol. 45(1), pages 5-22, January.
    10. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    11. Ben Craig & William Jackson & James Thomson, 2008. "Credit market failure intervention: Do government sponsored small business credit programs enrich poorer areas?," Small Business Economics, Springer, vol. 30(4), pages 345-360, April.
    12. Ben R. Craig & William E. Jackson & James B. Thomson, 2004. "Are SBA loan guarantees desirable?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Sep.
    13. Ben Craig & James Thomson, 2003. "Federal Home Loan Bank Lending to Community Banks: Are Targeted Subsidies Desirable?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 23(1), pages 5-28, February.
    14. W. Scott Frame & Michael Padhi & Lynn W. Woosley, 2001. "The effect of credit scoring on small business lending in low- and moderate-income areas," FRB Atlanta Working Paper 2001-6, Federal Reserve Bank of Atlanta.
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    Cited by:

    1. David Irwin & Steve Pattinson & Jonathan M Scott, 2014. "Local Enterprise Agency loan funds and investment readiness in UK small firms," Local Economy, London South Bank University, vol. 29(1-2), pages 9-21, February.
    2. Sangkyun Park, 2023. "Government Lending as a Tool to Mitigate the Effect of Asymmetric Information," Public Finance Review, , vol. 51(5), pages 688-715, September.

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