Small Firm Credit Market Discrimination, SBA Guaranteed Lending, and Local Market Economic Performance

Abstract

The credit access gap experienced by minority entrepreneurs has convinced researchers that discrimination is widespread and systematic in the small business credit market. The Small Business Administration's (SBA) guaranteed lending program was designed to respond to this credit-rationing problem. Here, it is postulated that a relationship should exist between measures of SBA-guaranteed lending and economic performance, and more so in markets with a higher percentage of potential minority small businesses. Local labor market employment rates were used as a measure of economic performance. Data on loans, economic conditions and bank deposits were collected. Loan-specific data were obtained on all SBA-guaranteed loans made between 1991 and 1999. Data sources on economic conditions included the National Bureau of Economic Research, the Bureau of Labor Statistics, and the Bureau of Economic Analysis. Deposit data were collected from the Federal Deposit Insurance Corporation SUMD files.A positive, significant impact on the average annual employment level in a local market as a result of SBA-guaranteed lending was observed. The magnitude of this result was three times higher for markets with a high percentage of potential minority businesses.