NEWSRELEASE
For Release: June 23, 2003
Contact: John McDowell (202) 205-6941
john.mcdowell@sba.gov
SBA Number: 03-39 ADVO
Banking Conditions Directly Affect Small Business
Adverse Small Bank Conditions More Detrimental To Smaller Firms
WASHINGTON, D.C. - When small banks face adverse conditions smaller businesses suffer greater detrimental performance than their larger counterparts, according to a new study released today. The study also confirms the conventional wisdom that higher interest rates depress lending in general, which leads to lower growth, employment, and payrolls in firms of all sizes.
The study found that increases in SBA guaranteed loans tended to increase output, employment, and payrolls. Moreover, according to Impact of Tight Money and/or Recessions on Small Business, SBA programs “acted as an economic stabilizer.”
“Small businesses have traditionally relied on bank financing from local banks to a greater extent than their larger counterparts,” said Thomas M. Sullivan, Chief Counsel for Advocacy. “So it’s no surprise that when small banks sneeze, small firms catch cold. The SBA can be proud of the fact that its loan-guarantees are a buffer during a recession or tight money situation,” he said.
Interestingly, the authors found that small bank capital had the largest effect on employment. The effect was about three times that of large banks. The result is that small bank capital is “high-powered” in terms of stimulating employment.
Principal investigator Dr. James Wilcox, Dr. Diana Hancock, and Dr. Joe Peek of PM KeyPoint LLC wrote Impact of Tight Money and/or Recessions on Small Business through funding from the Office of Advocacy.
The Office of Advocacy examines the role and status of small business in the economy and independently represents the views of small business to federal agencies, Congress, and the President. It is the source for small business statistics presented in user-friendly formats and it funds research into small business issues.
For more information, a research summary, and a complete copy of the study visit the Office of Advocacy website at
www.sba.gov/advo.###
Created by Congress in 1976, the Office of Advocacy of the U.S. Small Business Administration (SBA) is an independent voice for small business within the federal government. Appointed by the President and confirmed by the U.S. Senate, the Chief Counsel for Advocacy directs the office. The Chief Counsel advances the views, concerns, and interests of small business before Congress, the White House, federal agencies, federal courts, and state policy makers. Economic research, policy analyses, and small business outreach help identify issues of concern. Regional Advocates and an office in Washington, DC, support the Chief Counsel’s efforts. For more information on the Office of Advocacy, visit
www.sba.gov/advo, or call (202) 205-6533.