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ESSAYS ON GOVERNMENT-SUPPORTED SMALL-BUSINESS LENDING PROGRAMS IN THE U.S.
Gong, Yaming
Gong, Yaming
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Thesis/Dissertation
Date
2025-08
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Business Administration/Finance
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https://doi.org/10.34944/rkqd-cg67
Abstract
My dissertation investigates government-supported small-business lending markets in the United States, with a focus on the Small Business Administration (SBA) 7(a) loan program and Community Development Financial Institutions (CDFIs), both of which serve as a vital source of credit for financially constrained small businesses. Access to credit has become increasingly challenging due to the consolidation of large banks and tighter lending standards over the past decade. Against this backdrop, my research seeks to enhance our understanding of how federal lending programs operate in practice and how policy design can better support small businesses – the backbone of the U.S. economy. The first chapter, coauthored with Dr. Rosen, investigates the relationship between lender competition and loan pricing in the SBA 7(a) market. Using a novel, comprehensive loan-level dataset and a difference-in-differences strategy based on bank mergers, we find that increased local market concentration – measured by a loan-level Herfindahl–Hirschman Index (HHI) – leads to significantly higher loan spreads and lower credit provision. Our results contrast with earlier survey-based findings from conventional small-business lending and suggest that, due to government guarantees, the SBA loan market is more transactional and less dependent on relationship lending. We estimate that reducing market concentration by one standard deviation could have saved borrowers up to $4.79 billion between 2011 and 2020.
The second chapter studies rent-seeking behaviors by lenders in the SBA Preferred Lender Program (PLP), where designated lenders have full discretion over loan screening. While PLP lenders benefit from reduced administrative burdens and quicker turnaround times, I show empirical evidence that this discretion can encourage excessive risk-taking. However, in response to SBA monitoring and potential penalties, some PLP lenders engage in strategic behavior – rolling over or renegotiating problematic loans to preserve favorable performance metrics. These findings highlight the tension between policy goals and private incentives in delegated lending arrangements and raise caution about relying solely on enhanced supervision to mitigate opportunistic behavior.
The third chapter, coauthored with Dr. Rosen and Dr. Tang, offers a systematic analysis of Community Development Financial Institutions (CDFIs), a parallel policy initiative aimed at expanding credit access in underserved communities. Drawing on a newly compiled dataset of CDFI certification and loan activity, we show that CDFIs disproportionately enter and expand in areas with high poverty, minority populations, and greater reliance on government-subsidized credit. Institutions more likely to pursue certification include credit unions, minority depository institutions, and financially constrained lenders. Post-certification, CDFIs experience faster growth and greater lending intensity, though banks that become CDFIs often face declines in profitability. CDFI business loans also carry substantially higher interest rates than comparable SBA loans, reflecting both subsidy differences and potential borrower risk.
Overall, the chapters provide new evidence on the mechanisms, trade-offs, and institutional behaviors in U.S. policy-driven lending markets. The findings offer important implications for designing more effective government credit programs, improving regulatory oversight, and aligning incentives between public goals and private lenders.
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