Small Firm Finance, Credit Rationing, and the Impact of SBA‐Guaranteed Lending on Local Economic Growth

TLDR

Policymakers view the small business sector as a potential engine of economic growth, supported by tax relief, direct subsidies, and indirect subsidies through government lending programs. The Small Business Administration’s loan‑guarantee program aims to encourage lending to small businesses. Using a panel dataset of SBA‑guaranteed loans, the study evaluates whether such lending affects local economic performance. The analysis finds a positive, statistically significant but economically modest link between higher levels of SBA‑guaranteed lending and subsequent per capita income growth in local markets.

Abstract

Increasingly, policymakers look to the small business sector as a potential engine of economic growth. Policies to promote small businesses include tax relief, direct subsidies, and indirect subsidies through government lending programs. Encouraging lending to small business is the primary policy objective of the Small Business Administration (SBA) loan‐guarantee program. Using a panel data set of SBA‐guaranteed loans, we assess whether or not SBA‐guaranteed lending has an observable impact on local economic performance. We find a positive and significant (although economically small) relationship between the relative levels of SBA‐guaranteed lending in a local market and the future per capita income growth in that market.