"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"--Federal Reserve Bank of Atlanta web site.

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.

Recent studies have provided evidence that financial market development leads to higher rates of economic growth. This is further investigated by focusing on the rationale that financial market development may increase the amount of external finance available to small firms. In particular, a test of whether Small Business Administration (SBA) guaranteed lending positively impacts economic performance in low-income markets is conducted. It is hypothesized that credit market frictions, that is, costly information-gathering and verification of a small firm's project, lead to socially suboptimal credit allocation that negatively impacts the labor employment rate in the local market. If SBA guaranteed lending mitigates credit market frictions, a positive relationship should be seen between SBA guaranteed lending and level of employment, particularly in low-income financial markets. Loan-specific data on the borrower and lender was obtained from 1991 through 2002, including 360,000 loans. Economic data were also obtained for that time period. Results show a positive and significant correlation between the average annual level of employment in a local market and the level of SBA guaranteed lending that market. The intensity of the correlation increases for low-income markets.

The contributors discuss alternative methods of financing state and local economic development, including the role of venture capital in urban development, the role of banking institutions in encouraging the growth of small business, and the place of pension funds in economic growth.

This study examines the economic impact of Small Business Administration (SBA) guaranteed lending activity on the 12 states comprising the Southeast region (Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, and West Virginia) for the 1990-2015 period. Past studies find that the effect of Small Business Administration loans on regional economic performance, particularly in low-income areas, is positive but negligible. The study adds to the literature by focusing on a government-defined geographic unit called the micropolitan statistical area (which consists of at least one county with an urban core population of 10,000-50,000). The objective is to measure and evaluate the effect of Small Business Administration loans on various indicators of micropolitan area economic activity (gross regional product, employment, and income growth), while also controlling for other determinants of local economic growth. The study applies fixed effects regression model on a cross-section of 153 micropolitan areas for three subperiods in 1990-2015. It finds that micropolitan area economic growth in the Southeast region is dependent on Small Business Administration -guaranteed lending, industrial composition, human capital, and demographic factors.