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Small-firm credit markets, SBA-guaranteed lending, and economic performance in low-income areas

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  • Ben R. Craig
  • William E. Jackson
  • James B. Thomson

Abstract

SBA guaranteed-lending programs are one of many government-sponsored market interventions aimed at promoting small business. The rationale for providing SBA loan guarantees is often based on the argument that they reduce credit rationing in low-income markets for small business loans. In this paper we empirically test whether SBA-guaranteed lending has a greater impact on economic performance in low-income markets. Using local labor market employment rates as our measure of economic> performance, we find evidence consistent with this proposition. In particular, we find a positive and significant correlation between the average annual level of employment in a local market and the level of SBA-guaranteed lending in that local market. And the intensity of this correlation is relatively larger in low-income markets. Indeed, one interpretation of our results is that this correlation is positive and significant only in low-income markets. This result has important implications for public policy in general and SBA-guaranteed lending in particular.

Suggested Citation

  • Ben R. Craig & William E. Jackson & James B. Thomson, 2006. "Small-firm credit markets, SBA-guaranteed lending, and economic performance in low-income areas," Working Papers (Old Series) 0601, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwp:0601
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    Cited by:

    1. Elizabeth Laderman & Carolina Reid, 2010. "The Community Reinvestment Act and small business lending in low- and moderate-income neighborhoods during the financial crisis," Community Development Investment Center Working Paper 2010-05, Federal Reserve Bank of San Francisco.

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