Credit Supply and its Impact on Small Businesses during the Great Recession: An Empirical Study of Low and High Income Counties in the US

Abstract: The purpose of this paper is to investigate the economic effects that the reduction of credit that followed the Great Recession had on small businesses. We find that the supply of bank credit to small businesses in times of crisis does not discriminate against businesses in low income regions, but rather that the economic effects are the same through a nation-wide perspective. We identify credit supply shocks on a county level, through a comprehensive data collection covering the years before, during and after the Great Recession of 2008, using a similar methodology as Greenstone et. al (2020). What we find is that there is a significant difference between low and high income counties in regard to loan origination, but not in regard to employment, establishment, and payroll growth as a result of the credit shock that followed the financial crisis of 2007-2009.