Small Business Lending and Economic Well-Being in U.S. Counties During the Great Recession.

Abstract

Previous research shows that small business lending declined significantly during the Great Recession. In this paper, we examine the effects of small business lending on measures of socioeconomic development in U.S. counties during this time period. Citing literature which shows that small business owners in nonmetropolitan counties depend on traditional bank loans more than their metropolitan counterparts, we propose that the effects of small business lending will be more important in nonmetropolitan counties. We utilize data from Community Reinvestment Act Federal Financial Institutions Examination Council and U.S. Census. We use two measures of small business lending: the average per loan small business lending from 2005-2010 and change in small business lending amount in the county between 2005 and 2010. We find that the per loan average amount of small business lending between 2005-2010 increased the 2010 median family income and 2010 county poverty rate in nonmetropolitan counties. The effects in metropolitan counties show no benefits of small business lending. Change in the amount of business loan had no consistent effects. Implications for existing and future research are discussed. Keywords: rural development; small business lending