Absence of conflict of interest.
Citation
Highlights
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The study's objective was to examine the impact of the Business and Industry (B&I) Guaranteed Loan Program on employment growth.
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This study used a difference-in-difference design to estimate the impacts of the B&I Program using B&I program administrative data and business-level data from the National Establishment Time-Series (NETS) database. The authors used statistical models to compare employment outcomes of B&I recipients and non-B&I recipients.
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The study found that receipt of B&I loans led to statistically significant positive employment growth within two, three and four years of loan receipt.
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This study receives a moderate evidence rating. This means we are somewhat confident that the estimated effects are attributable to the Business and Industry (B&I) Guaranteed Loan Program, and not to other factors.
Intervention Examined
Business and Industry (B&I) Guaranteed Loan Program
Features of the Intervention
The U.S. Department of Agriculture (USDA) Rural Development administers several programs to support businesses in rural areas through the Rural Business-Cooperative Service (RBS). The Business and Industry (B&I) Guaranteed Loan program is the oldest and largest program operated under RBS. The B&I program aims to stimulate rural economies and create employment opportunities through loan guarantees for business and infrastructure development. By reducing lender risk through loan guarantees, the program also aims to encourage lenders to approve larger loans or loans they would not otherwise make to rural businesses. The program has grown over the last 30 years, and currently supports an average of 400 new loans and over $1 billion in obligated loan amounts each year.
The B&I program is a lender-driven loan guarantee program which guarantees a percentage of the principal loan if the rural business borrower defaults on the loan. The guaranteed amount varies depending on the total principal of the loan: loans of $5 million or less have a maximum guarantee rate of 80%; loans from $5 to 10 million have a maximum guarantee rate of 70%; loans from $10–25 million have a maximum guarantee rate of 60%. The guaranteed portion of the loan does not count against legal lending limits. The B&I program is available to most national and state-chartered banks, thefts, Community Development Institutions (CDFI), community development corporations, mortgage companies, and insurance companies. Lenders first apply to participate in the B&I program through their state's USDA Rural Development Business Program Director. Approved lenders and borrowers then agree on loan terms, and apply for guaranteed loans through their local USDA office. Borrowers must be located in a rural areas. For each guaranteed loan, the USDA charges an initial fee of 3% of the loan amount, and an annual renewal fee based on the outstanding principal loan balance. Business borrowers can use the funding received through guaranteed loans for business acquisitions, debt refinancing, or to purchase land, buildings, machinery or requirement.
The B&I program is designed to serve loan lenders and support businesses in rural areas. A rural area is defined as an area outside a city or town with a population of at least 50,000.
Features of the Study
This study uses a difference-in-difference design to examine the impact of the B&I program on employment outcomes. Using USDA Rural Development B&I program administrative data and business-level data from the National Establishment Time-Series (NETS) database, authors compare a treatment group of businesses that received B&I loans between 1990 and 2013 to a matched comparison group of businesses that did not receive B&I loans. The authors used statistical models to compare employment outcomes of B&I recipients and non-B&I recipients.
The treated sample was limited to businesses that received their first B&I loan and establishments that had positive employment at least one year before the B&I loan. The comparison group was matched to the B&I treated business based on business start year, state, industrial classification code, establishment type (whether business is independent or multiunit), nonmetro or metro county, age of business at the time of the loan, and employment level two years before the loan. The analytic sample included 1,665 businesses in the treatment group and 754,247 businesses in the comparison group. The average B&I loan amount for those in the study sample was around $2 million (in 2013 values).
Findings
Employment
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The study found that B&I loan receipt led to a statistically significant increase in employment growth at the firm level: 0.518 jobs were added after 2 years, 0.608 jobs were added after 3 years, and 0.592 jobs were added after 4 years.
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The study found no statistically significant effect on the amount of the B&I loan on 2-, 3- or 4-year employment growth.
Considerations for Interpreting the Findings
The study authors estimated multiple related impacts on outcomes related to employment. Performing multiple statistical tests on related outcomes makes it more likely that some impacts will be found statistically significant purely by chance and not because they reflect program effectiveness. The authors did not perform statistical adjustments to account for the multiple tests, so the number of statistically significant findings in these domains is likely to be overstated.
Causal Evidence Rating
The quality of casual evidence in this report is moderate because it was based on a well-implemented non-experimental design. This means we are somewhat confident that the estimated effects are attributable to the Business and Industry (B&I) Guaranteed Loan Program, but other factors might also have contributed.