The Great Recession of 2008–2009, Conventional and Non-conventional U.S. Federal Government Responses and Their Impact on U.S. Small Businesses

This paper provides a general background on the events that lead to the financial crisis and Great Recession of 2008–2009 in the United States. A strong argument can be made that the origins of the crisis can be traced to a fundamental imbalance between house prices and personal income. This imbalance resulted in a pronounced drop of inter-bank confidence, leading to a dramatic rise in the relative cost of capital for financial institutions, and a sharp reduction in lending. As a result, the economy experienced a pronounced recession, hitting small businesses particularly hard. The U.S. federal government responded with enormous conventional and non-conventional measures to assist the financial markets and stimulate the economy. In addition, the federal government undertook numerous actions to address the sharp drop in the small business sector by providing additional incentives to (1) stimulate small business lending and (2) fortify small businesses’ balance sheets. The U.S. Small Business Administration (SBA) played a critical role in increasing access to capital for small businesses. The SBA’s Capital Access Programs experienced an approximate 60% decline in its lending volume. The SBA addressed this challenge by providing additional incentives to financial institutions and by assisting in the unfreezing of the secondary market for SBA loans.