Government, University and Business Linkages
New Horizons in Entrepreneurship series
Edited by Scott Shane
Chapter 6: On SBA-Guaranteed Lending and Economic Growth
Ben Craig, William Jackson and James Thomson1 INTRODUCTION The promotion of small businesses is a cornerstone of economic policy for a large number of industrialized countries. Right or wrong, there appears to be a widely held perception that the small business sector is the incubator of growth, the place where innovation takes place and new ideas become economically viable business enterprises. Moreover, despite the research ﬁndings of Davis et al. (2000) that the small business sector is not a net creator of jobs in the United States, policy makers routinely point to small businesses as important sources of employment growth. Therefore it is not surprising that there is widespread political support for government interventions aimed at promoting small business in the United States and increasingly around the world. A widely held view among economists is that, while markets are the best way to allocate scarce resources, sometimes government interventions can improve upon market outcomes. Credit market imperfections, particularly in the market for small enterprise credit, are among the usual suspects cited as rationale for government intervention. After all, there is reason to believe that the information-related problems that drive the credit rationing equilibrium of Stiglitz and Weiss (1981) may be particularly severe in the market for small-ﬁrm ﬁnance. To the extent that small ﬁrms are creditrationed, government interventions in the form of direct credit or Small Business Administration (SBA) loan guarantees may be justiﬁed because of the deadweight losses associated with not funding all the projects in the...
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