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Loan guarantee schemes in the UK: the natural experiment of the enterprise finance guarantee and the 5 year rule

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  • Marc Cowling
  • Paul Robson
  • Ian Stone
  • Gordon Allinson

Abstract

Loan guarantee schemes have existed since 1953 (in the US) and are widely used throughout the world to provide financial support to smaller firms by guaranteeing loans from commercial banks. The UK government has been an active supporter of loan guarantees since 1981, and has a long track record of modifying its scheme to reflect changing market conditions and the financing needs of its SME sector. Arguably the two most significant changes occurred in 2008 when the 5-Year Rule on eligibility was removed and in 2009 when the long-standing Small Firms Loan Guarantee Scheme was replaced by the Enterprise Finance Guarantee Scheme. We treat the removal of the 5-Year Rule as a natural policy experiment and empirically question whether, on economic grounds, this was a sensible policy. Our findings suggest that the 5-Year Rule was a better policy choice with regard to employment but had no impact on sales growth.

Suggested Citation

  • Marc Cowling & Paul Robson & Ian Stone & Gordon Allinson, 2018. "Loan guarantee schemes in the UK: the natural experiment of the enterprise finance guarantee and the 5 year rule," Applied Economics, Taylor & Francis Journals, vol. 50(20), pages 2210-2218, April.
    • Handle: RePEc:taf:applec:v:50:y:2018:i:20:p:2210-2218
    DOI: 10.1080/00036846.2017.1392004
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    Cited by:

    1. Kwangchul Ji & Hong-Youl Ha, 2021. "Empirical Evidence of Risks of Public-Loan Finance: Comparison between Self-Employers and SMEs," Sustainability, MDPI, vol. 13(11), pages 1-21, June.
    2. Amina Ika Micah, 2022. "Three essays on access to credit and financial shock in Nigeria," Economics PhD Theses 0422, Department of Economics, University of Sussex Business School.
    3. Luca Fare & Marcus Dejardin & Eric Toulemonde, 2023. "Bankruptcy recovery rate and small businesses' innovation," DeFiPP Working Papers 2302, University of Namur, Development Finance and Public Policies.
    4. Ondřej Dvouletý & Ivana Blažková, 2019. "The Impact of Public Grants on Firm-Level Productivity: Findings from the Czech Food Industry," Sustainability, MDPI, vol. 11(2), pages 1-24, January.

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