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Small Businesses and Small Business Finance during the Financial Crisis and the Great Recession: New Evidence From the Survey of Consumer Finances

Author

Listed:
  • Kennickell, Arthur B.

    () (Board of Governors of the Federal Reserve System (U.S.))

  • Kwast, Myron L.

    (FDIC)

  • Pogach, Jonathan

    (FDIC)

Abstract

We use the Federal Reserve's 2007, 2009 re-interview of 2007 respondents, and 2010 Surveys of Consumer Finances (SCFs) to examine the experiences of small businesses owned and actively managed by households during these turbulent years. This is the first paper to use these SCFs to study small businesses even though the surveys contain extensive data on a broad cross-section of firms and their owners. We find that the vast majority of small businesses were severely affected by the financial crisis and the Great Recession, including facing tight credit constraints. We document numerous and often complex interdependencies between the finances of small businesses and their owner-manager households, including a more complicated role of housing assets than has been reported previously. We find that workers who lost their job responded in part by starting their own small business, and that factors correlated with the survival of a small business differed greatly depending upon whether the firm was established or new. Our results strongly reinforce the importance of relationship finance to small businesses, and the primary role of commercial banks in such relationships. We find that both cross-section and panel data are needed to understand the complex issues associated with the creation, survival and failure of small businesses.

Suggested Citation

  • Kennickell, Arthur B. & Kwast, Myron L. & Pogach, Jonathan, 2015. "Small Businesses and Small Business Finance during the Financial Crisis and the Great Recession: New Evidence From the Survey of Consumer Finances," Finance and Economics Discussion Series 2015-39, Board of Governors of the Federal Reserve System (US).
  • Handle: RePEc:fip:fedgfe:2015-39
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    File URL: http://dx.doi.org/10.17016/FEDS.2015.039
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    References listed on IDEAS

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    Cited by:

    1. Jagtiani, Julapa & Lemieux, Catharine, 2016. "Small Business Lending After the Financial Crisis: A New Competitive Landscape for Community Banks," Economic Perspectives, Federal Reserve Bank of Chicago, issue 3, pages 1-30.
    2. Jagtiani, Julapa & Lemieux, Catharine, 2016. "Small business lending: challenges and opportunities for community banks," Working Papers 16-8, Federal Reserve Bank of Philadelphia.

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    Keywords

    Great Recession; small business;

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