3,417 research outputs found
Federal Home Loan Bank lending to community banks: are targeted subsidies necessary?
The Gramm-Leach-Bliley Act of 1999 extended the lending authority of Federal Home Loan Banks to include advances secured by small-enterprise loans of community financial institutions. The authors examine three possible reasons for the extension of this selective credit subsidy to community banks and thrifts, including the need to subsidize community depository institutions, stabilize the Federal Home Loan Banks, and address a market failure for small enterprise loans in rural banking markets. They use two empirical models to investigate whether funding constraints affect small-business lending decisions by rural community banks. The results reject the hypothesis that access to increased funds will increase the amount of small-business loans made by community banks.Small business ; Federal home loan banks
SBA guaranteed lending and local economic growth
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.
Does government intervention in the small-firm credit market help economic performance?
The guaranteed lending programs of the Small Business Administration (SBA) are large and growing rapidly. The SBAâs fiscal year 2008 performance budget calls for $25 billion in guaranteed loans for small businessesâa new record for the agency. Some critics of SBA programs suggest they do not help small businesses or overall economic performance. Other critics suggest that these programs unfairly benefit the financial institutions that participate in SBAâs guaranteed lending programs. While very little serious empirical evidence exists on whether the net economic impact of the SBAâs guaranteed lending programs is positive or negative, a few recent studies provide some insight into the question. In general, they suggest a small positive impact of the SBAâs programs on economic performance. However, the results are very tentative and further research is needed to declare a more definitive position. We provide a general overview of the SBAâs guaranteed lending programs and summarize the results of these studies.Small Business Administration ; Small business - Finance ; Economic development
Are SBA loan guarantees desirable?
Over the last 10 years, the Small Business Administration has been responsible for well over $100 billion in small business credit extensions, more than any single private lender. This Commentary explores the motivations for such a large investment of taxpayer dollars.Small Business Administration ; Loans ; Credit
Small firm credit market discrimination, SBA-guaranteed lending, and local market economic performance
We empirically test whether SBA-guaranteed lending has a greater impact on economic performance in markets with a high percentage of potential minority small businesses. This hypothesis is predicated on priors related to three overlapping assumptions. These three assumptions are: (1) The classic type of credit rationing developed in the seminal paper by Stiglitz and Weiss (1981) is more likely to occur in markets with a higher per capita percentage of minority small businesses because such markets are more likely to have more severe information asymmetry problems, (2) SBA-guaranteed lending is likely to reduce these credit rationing problemsâthus improving the level of development of the local financial market, and (3) increased local financial market development helps to lubricate the wheels of economic performance (Rajan and Zingales, 1998). 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 impact on the average annual level of employment in a local market of SBA-guaranteed lending in that local market. This impact is 200 percent larger in markets with a high percentage of potential minority small businesses. This result has important implications for public policy in general and SBA-guaranteed lending in particular.Small business - Finance ; Small Business Administration ; Discrimination in consumer credit
On SBA-guaranteed lending and economic growth
Increasingly, policymakers are looking 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 (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 and regional economic performance.Small Business Administration ; Loans ; Small business
SBA-loan guarantees and local economic growth
Increasingly policymakers are looking 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 (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 and regional economic performance.Small business ; Economic development ; Loans ; Small Business Administration
The role of relationships in small-business lending
In the presence of imperfect information, both large and small banks try to find alternative ways to identify creditworthy borrowers. Lending relationships are one way to go about this. Relationships between banks and small businesses tend to be much closer than those between banks and large businesses. This Commentary explains why lending relationships are valuable to both small businesses and banks, how they reduce information-lending problems, and what other solutions exist to help in the reduction.Small business - Finance ; Loans ; Credit scoring systems
Small-firm credit markets, SBA-guaranteed lending, and economic performance in low-income areas
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.Small business - Finance ; Small Business Administration ; Government-sponsored enterprises
The importance of financial market development on the relationship between loan guarantees for SMEs and local market employment rates
We empirically examine whether a major government intervention in the small-firm credit market yields significantly better results in markets that are less financially developed. The government intervention that we investigate is SBA-guaranteed lending. The literature on financing small and medium size enterprises (SMEs) suggests that small firms may be exposed to a particular type of market failure associated with credit rationing. And SMEs in markets that are less financially developed will likely face a greater degree of this market failure. To test our hypothesis, we use the level of bank deposits per capita as our relative measure of financial market development, and we use local market employment rates as our measure of economic performance. After controlling for the appropriate cross-sectional market characteristics, we find that SBA-guaranteed lending has a significantly more (less) positive impact on the average annual level of employment when the local market is relatively less (more) financially developed. This result has important implications for public policy directives concerning where SBA-guaranteed lending should be directed.Small Business Administration ; Financial markets ; Small business - Finance ; Employment
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