Empirical Evidence of Risks of Public-Loan Finance: Comparison between Self-Employers and SMEs

Public financial loans are very complex. However, previous research has largely neglected the effective management of public funds. More specifically, how to maintain the optimal balance between small businesses and loan providers for managing public funds over time remains unclear. Moreover, little is known about how public funds should be managed to increase survival periods, which are directly related to these institutions’ financial stability. This study tests the difference between public fund borrowers and providers from perspectives on their long-term survival and compares survival periods using 499,554 guaranteed loans. The findings show that 85% guarantee ratios and high credit ratings help increase survival periods. The findings also show that individual-based borrowers, such as self-employers, have a strong tendency to survive much longer than SMEs. Finally, our study extends the literature by offering a risk theory perspective on public financial institutions that explains how guarantee ratios and credit ratings affect the survival periods of borrowers, resulting in these institutions’ financial soundness.