SBA Guaranteed Lending and Local Economic Growth

Ben R. Craig, William E. Jackson III, and James B. Thomson
Working Paper 2005-28
December 2005

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Increasingly, policymakers look to the small business sector as a potential engine of economic growth. Policies to promote small businesses include tax relief, direct subsidies, and indirect subsidies through government lending programs. Encouraging lending to small business is the primary policy objective of the Small Business Administration's (SBA) loan-guarantee program. Using a panel data set of SBA guaranteed loans, we assess whether SBA guaranteed lending has an observable impact on local economic performance. We find a positive and significant (although economically small) relationship between the relative levels of SBA guaranteed lending in a local market and the future per capita income growth in that market.

JEL classification: G38, H81, O16

Key words: small business, economic growth, loan guarantees, credit rationing, relationship lending

The authors thank Boyce Watkins and other participants of the inaugural Office Depot Small Business Research Forum. Additionally, the authors thank the Small Business Administration for providing the loan-guarantee data and Pat Higgins for outstanding research support. The views expressed here are the authors’ and not necessarily those of the Federal Reserve Banks of Atlanta or Cleveland or the Federal Reserve System. Any remaining errors are the authors’ responsibility.

Please direct questions or comments regarding content to James Thomson, Federal Reserve Bank of Cleveland, 1455 East Sixth Street, Cleveland, OH 44114, 216-579-2000,; Ben R. Craig, Federal Reserve Bank of Cleveland, 1455 East Sixth Street, Cleveland, OH 44114, 216-579-2000; or William E. Jackson III, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, GA 30309, 404-498-8708.