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

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

Abstract

The guaranteed lending programs of the Small Business Administration (SBA) are large and growing rapidly. The SBA’s fiscal year 2008 performance budget calls for $25 billion in guaranteed loans for small businesses—a 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 SBA’s guaranteed lending programs. While very little serious empirical evidence exists on whether the net economic impact of the SBA’s 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 SBA’s 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 SBA’s guaranteed lending programs and summarize the results of these studies.

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Bibliographic Info

Article provided by Federal Reserve Bank of Cleveland in its journal Policy Discussion Papers.

Volume (Year): (2007)
Issue (Month): Aug ()
Pages:

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Handle: RePEc:fip:fedcpd:y:2007:i:aug:n:22

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Keywords: Small Business Administration ; Small business - Finance ; Economic development;

References

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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, III & James B. Thomson, 2004. "Are SBA loan guarantees desirable?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Sep.
  3. 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 351-81, July.
  4. Allen N. Berger & W. Scott Frame & Nathan H. Miller, 2002. "Credit scoring and the availability, price, and risk of small business credit," Working Paper 2002-6, Federal Reserve Bank of Atlanta.
  5. Ben R. Craig & William E. Jackson, III & James B. Thomson, 2005. "The role of relationships in small-business lending," Economic Commentary, Federal Reserve Bank of Cleveland, issue Oct.
  6. 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.
  7. W. Scott Frame & Michael Padhi & Lynn Woosley, 2001. "The effect of credit scoring on small business lending in low- and moderate-income areas," Working Paper 2001-6, Federal Reserve Bank of Atlanta.
  8. Ben R. Craig & James B. Thomson, 2001. "Federal Home Loan Bank lending to community banks: are targeted subsidies necessary?," Working Paper 0112, Federal Reserve Bank of Cleveland.
  9. Ben Craig & James Thomson, 2003. "Federal Home Loan Bank Lending to Community Banks: Are Targeted Subsidies Desirable?," Journal of Financial Services Research, Springer, vol. 23(1), pages 5-28, February.
  10. 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.
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