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Is the Small Firms Loan Guarantee Scheme Hazardous for Banks or Helpful to Small Business?

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Author Info
 Cowling, Marc
Mitchell, Peter

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Abstract

Loan guarantee schemes are an integral part of SME policy in both developed and developing countries. Yet little has been done to evaluate such programmes, particularly in terms of their ability to correct for capital market imperfections. This paper uses individual loan data from some 42,000 UK SFLGS backed debt contracts to empirically test the default specification outlined in the seminal credit rationing paper of Stiglitz and Weiss (1981). The results show that default (failure) does increase with the banks cost of capital, but not with the government premium. In addition, default appears to be determined by a whole host of other factors not typically considered in the credit rationing literature. Copyright 2003 by Kluwer Academic Publishers

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Publisher Info
Article provided by Springer in its journal Small Business Economics.

Volume (Year): 21 (2003)
Issue (Month): 1 (August)
Pages: 63-71
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Handle: RePEc:kap:sbusec:v:21:y:2003:i:1:p:63-71

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  1. Iichiro Uesugi & Koji Sakai & Guy M. Yamashiro, 2006. "Effectiveness of Credit Guarantees in the Japanese Loan Market," Discussion papers 06004, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
  2. Ben R. Craig & William E. Jackson, III & James B. Thomson, 2006. "Small firm credit market discrimination, SBA-guaranteed lending, and local market economic performance," Working Paper 0613, Federal Reserve Bank of Cleveland. [Downloadable!]
  3. Ben R. Craig & William E. Jackson, III & James B. Thomson, 2004. "On SBA-guaranteed lending and economic growth," Working Paper 0403, Federal Reserve Bank of Cleveland. [Downloadable!]
  4. 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. [Downloadable!] (restricted)
  5. Ben R. Craig & William E. Jackson, III & James B. Thomson, 2005. "SBA-loan guarantees and local economic growth," Working Paper 0503, Federal Reserve Bank of Cleveland. [Downloadable!]
  6. William E.Jackson, III & Ben R. Craig & James B. Thompson, 2006. "Does Small Business Administration guaranteed lending improve economic performance in low–income areas?," Proceedings – Community Affairs Dept. Conferences, Federal Reserve Bank of Kansas City, issue Jul, pages 55-85. [Downloadable!]
  7. Allan Riding & Judith Madill & George Haines, 2007. "Incrementality of SME Loan Guarantees," Small Business Economics, Springer, vol. 29(1), pages 47-61, June. [Downloadable!] (restricted)
  8. Ben R. Craig & William E. Jackson, III & James B. Thomson, 2007. "On government intervention in the small-firm credit market and its effect on economic performance," Working Paper 0702, Federal Reserve Bank of Cleveland. [Downloadable!]
  9. Ben R. Craig & William E. Jackson, III & James B. Thomson, 2006. "Small-firm credit markets, SBA-guaranteed lending, and economic performance in low-income areas," Working Paper 0601, Federal Reserve Bank of Cleveland. [Downloadable!]
  10. Filipe Silva & Carlos Carreira, 2009. "No Deep Pockets: Some stylized results on firms' financial constraints," GEMF Working Papers 2009-06, GEMF - Faculdade de Economia, Universidade de Coimbra. [Downloadable!]
  11. Giovanni Trovato & Marco Alfó, 2006. "Credit rationing and the financial structure of Italian small and medium enterprises," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 167-184, May. [Downloadable!] (restricted)
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