Small Business Administration Lending and Economic Performance

This paper uses a panel of state-level data spanning from 1990 to 2023 to test whether the U.S. Small Business Administration (SBA) lending under two distinct loan programs, 504 and 7(a), has any significant impact on state-level real GDP and unemployment rate and how this impact changed during the 2007-2009 global financial crisis (GFC) originated from the U.S. subprime mortgage crisis. Based on a dynamic panel data model with Generalized Method of Moment (GMM) estimator, we find that the positive impact of SBA lending on promoting state-level real GDP and reducing the unemployment rate are statistically significant and economically important. Specifically, a 1% increase in SBA loan per job supported is associated with more than 0.06% decrease in state unemployment rate. However, this positive impact diminished during the GFC resulting in a 0.002% decrease in state-level real GDP, and a 0.03% increase in state unemployment rate for both loan programs.