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Can the supply of small business loans be increased?

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  • Jim Wilkinson
  • Jon Christensson

Abstract

Small and new businesses, widely credited as engines for job growth, have struggled during the recovery. One reason, say some analysts, is that bank lending to small businesses has declined steadily since the start of the recession. If, as many small businesses claim, the supply of credit from banks has contracted, then increasing the supply of small business loans may allow these businesses to grow and create new jobs. Understanding the factors that affect loan supply may help policymakers design policies to increase the supply of small business loans and, therefore, support further job growth. ; Wilkinson and Christensson analyze the potential effectiveness of two strategies that policymakers can use to expand the supply of small business loans: increasing bank capital and reducing problem assets. A review of recent policy initiatives suggests that influencing bank capital may be easier than addressing problem assets. However, reducing problem assets may lead to a larger and more persistent increase in the supply of loans.

Suggested Citation

  • Jim Wilkinson & Jon Christensson, 2011. "Can the supply of small business loans be increased?," Economic Review, Federal Reserve Bank of Kansas City, issue Q II.
  • Handle: RePEc:fip:fedker:y:2011:i:qii:n:v.96no.2:x:3
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    References listed on IDEAS

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    1. John Haltiwanger & Ron S. Jarmin & Javier Miranda, 2010. "Who Creates Jobs? Small vs. Large vs. Young," Working Papers 10-17, Center for Economic Studies, U.S. Census Bureau.
    2. Judit Montoriol-Garriga & J. Christina Wang, 2011. "The Great Recession and bank lending to small businesses," Working Papers 11-16, Federal Reserve Bank of Boston.
    3. Alicia M. Robb & David T. Robinson, 2014. "The Capital Structure Decisions of New Firms," Review of Financial Studies, Society for Financial Studies, vol. 27(1), pages 153-179, January.
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    Cited by:

    1. Miguel Ramirez & Aalok Pandey, 2012. "Why does the Cost of Credit Intermediation Increase for Small Firms Relative to Large Firms during Recessions? A Conceptual and Empirical Analysis," Working Papers 1205, Trinity College, Department of Economics.

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