IDEAS home Printed from https://ideas.repec.org/a/oup/revfin/v27y2023i1p247-287..html
   My bibliography  Save this article

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

Author

Listed:
  • John Hackney

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.

Suggested Citation

  • John Hackney, 2023. "Small Business Lending in Financial Crises: The Role of Government-Guaranteed Loans," Review of Finance, European Finance Association, vol. 27(1), pages 247-287.
    • Handle: RePEc:oup:revfin:v:27:y:2023:i:1:p:247-287.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/rof/rfac002
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Abhijit V. Banerjee & Esther Duflo, 2014. "Do Firms Want to Borrow More? Testing Credit Constraints Using a Directed Lending Program," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(2), pages 572-607.
    2. Beck, Thorsten & Demirguc-Kunt, Asli & Laeven, Luc & Maksimovic, Vojislav, 2006. "The determinants of financing obstacles," Journal of International Money and Finance, Elsevier, vol. 25(6), pages 932-952, October.
    3. Thorsten Beck & Asli Demirguc-Kunt & Luc Laeven & Ross Levine, 2008. "Finance, Firm Size, and Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(7), pages 1379-1405, October.
    4. Allen N. Berger & Christa H. S. Bouwman & Dasol Kim, 2017. "Small Bank Comparative Advantages in Alleviating Financial Constraints and Providing Liquidity Insurance over Time," The Review of Financial Studies, Society for Financial Studies, vol. 30(10), pages 3416-3454.
    5. Allen N. Berger & Geraldo Cerqueiro & María Fabiana Penas, 2015. "Market Size Structure and Small Business Lending: Are Crisis Times Different from Normal Times?," Review of Finance, European Finance Association, vol. 19(5), pages 1965-1995.
    6. Thorsten Beck & Asli Demirgüç‐Kunt & Vojislav Maksimovic, 2005. "Financial and Legal Constraints to Growth: Does Firm Size Matter?," Journal of Finance, American Finance Association, vol. 60(1), pages 137-177, February.
    7. Manuel Adelino & Song Ma & David Robinson, 2017. "Firm Age, Investment Opportunities, and Job Creation," Journal of Finance, American Finance Association, vol. 72(3), pages 999-1038, June.
    8. Adelino, Manuel & Schoar, Antoinette & Severino, Felipe, 2015. "House prices, collateral, and self-employment," Journal of Financial Economics, Elsevier, vol. 117(2), pages 288-306.
    9. Sumit Agarwal, 2010. "Distance and Private Information in Lending," The Review of Financial Studies, Society for Financial Studies, vol. 23(7), pages 2757-2788, July.
    10. Alexander W. Bartik & Zoe B. Cullen & Edward L. Glaeser & Michael Luca & Christopher T. Stanton & Adi Sunderam, 2020. "When Should Public Programs be Privately Administered? Theory and Evidence from the Paycheck Protection Program," NBER Working Papers 27623, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Riccardo Calcagno & Paolo Finaldi Russo & Ludovica Galotto & Anita Quas, 2024. "Financial literacy of micro-entrepreneurs and access to credit," Questioni di Economia e Finanza (Occasional Papers) 853, Bank of Italy, Economic Research and International Relations Area.
    2. Thiago Christiano Silva & Carlos Eduardo de Almeida & Solange Maria Guerra & Benjamin Miranda Tabak, 2024. "COVID-19 and Credit Reallocation: evidence from bank branch lending in Brazil," Working Papers Series 601, Central Bank of Brazil, Research Department.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Reto Wernli & Andreas Dietrich, 2022. "Only the brave: improving self-rationing efficiency among discouraged Swiss SMEs," Small Business Economics, Springer, vol. 59(3), pages 977-1003, October.
    2. Meslier, Céline & Rehault, Pierre-Nicolas & Sauviat, Alain & Yuan, Dian, 2022. "Benefits of local banking in local economic development: Disparities between micro firms and other SMEs," Journal of Banking & Finance, Elsevier, vol. 143(C).
    3. Duranton,Gilles & Ghani,Syed Ejaz & Grover,Arti Goswami & Kerr,William Robert & Duranton,Gilles & Ghani,Syed Ejaz & Goswami,Arti Grover & Kerr,William Robert, 2015. "Effects of land misallocation on capital allocations in India," Policy Research Working Paper Series 7451, The World Bank.
    4. Knack, Steve & Xu, Lixin Colin, 2017. "Unbundling institutions for external finance: Worldwide firm-level evidence," Journal of Corporate Finance, Elsevier, vol. 44(C), pages 215-232.
    5. Francesco Quatraro & Marco Vivarelli, 2015. "Drivers of Entrepreneurship and Post-entry Performance of Newborn Firms in Developing Countries," The World Bank Research Observer, World Bank, vol. 30(2), pages 277-305.
    6. Benjamin L. Collier & Andrew F. Haughwout & Howard C. Kunreuther & Erwann O. Michel‐Kerjan, 2020. "Firms’ Management of Infrequent Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(6), pages 1329-1359, September.
    7. Bossavie, Laurent & Görlach, Joseph-Simon & Özden, Çağlar & Wang, He, 2024. "Capital Markets, Temporary Migration and Entrepreneurship: Evidence from Bangladesh," World Development, Elsevier, vol. 176(C).
    8. Horvath, Akos & Lang, Peter, 2021. "Do loan subsidies boost the real activity of small firms?," Journal of Banking & Finance, Elsevier, vol. 122(C).
    9. Jensen, Thais Laerkholm & Leth-Petersen, Søren & Nanda, Ramana, 2022. "Financing constraints, home equity and selection into entrepreneurship," Journal of Financial Economics, Elsevier, vol. 145(2), pages 318-337.
    10. Hasan, Iftekhar & Jackowicz, Krzysztof & Jagiełło, Robert & Kowalewski, Oskar & Kozłowski, Łukasz, 2021. "Local banks as difficult-to-replace SME lenders: Evidence from bank corrective programs," Journal of Banking & Finance, Elsevier, vol. 123(C).
    11. Errico, Lucia & Rondinella, Sandro & Trivieri, Francesco, 2024. "Diversity in banking and new firm formation. Insights from the Italian local credit markets," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 1095-1109.
    12. Erhardt, Eva, 2017. "Microfinance beyond self-employment: Evidence for firms in Bulgaria," MPRA Paper 79294, University Library of Munich, Germany.
    13. Epure, Mircea & Guasch, Martí, 2020. "Debt signaling and outside investors in early stage firms," Journal of Business Venturing, Elsevier, vol. 35(2).
    14. Marco Vivarelli, 2013. "Is entrepreneurship necessarily good? Microeconomic evidence from developed and developing countries," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 22(6), pages 1453-1495, December.
    15. Didier, Tatiana & Schmukler, Sergio L., 2013. "The financing and growth of firms in China and India: Evidence from capital markets," Journal of International Money and Finance, Elsevier, vol. 39(C), pages 111-137.
    16. Ćehajić, Aida & Košak, Marko, 2022. "Bank lending and small and medium-sized enterprises’ access to finance – Effects of macroprudential policies," Journal of International Money and Finance, Elsevier, vol. 124(C).
    17. KOUAKOU, Dorgyles C.M., 2024. "Can past informality impede registered firms' access to credit?," MPRA Paper 121766, University Library of Munich, Germany.
    18. Pauline Avril & Gregory Levieuge & Camelia Turcu, 2023. "Do bankers want their umbrellas back when it rains? Evidence from typhoons in China," Working Papers 2023.08, International Network for Economic Research - INFER.
    19. Ullah, Barkat, 2020. "Financial constraints, corruption, and SME growth in transition economies," The Quarterly Review of Economics and Finance, Elsevier, vol. 75(C), pages 120-132.
    20. Erhardt, Eva Christine, 2017. "Microfinance beyond self-employment: Evidence for firms in Bulgaria," Labour Economics, Elsevier, vol. 47(C), pages 75-95.

    More about this item

    Keywords

    Small business; Financial crisis; Financial constraints; Government-guaranteed lending;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G01 - Financial Economics - - General - - - Financial Crises

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:revfin:v:27:y:2023:i:1:p:247-287.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/eufaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.