Yale School of Management

Posts by SME Guarantee

Congress Expands Support to Small Businesses

April 24, 2020

On April 23, the U.S. Congress passed emergency legislation to appropriate an additional $310 billion for the Paycheck Protection Program (PPP), $50 billion for Economic Injury Disaster Loans (EIDL), and $10 billion for EIDL Emergency Advances. Congress created the PPP and EIDL Emergency Advance programs on March 27 in the CARES Act.

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Lessons Learned in Designing and Implementing Support for Small Businesses

April 24, 2020

One month into the biggest global bailout of small businesses in history, countries have started to adjust their initial programs to make them more effective. Small and medium sized enterprises (SMEs) account for 90 percent of businesses and a majority of employment opportunities across the world. Even during non-crisis times, many SMEs face constraints in accessing financing. Governments are working to provide exceptional support during the COVID-19 pandemic in order to prevent bankruptcies, unemployment, and a deeper recession.

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Large-Scale Assistance Programs for Small Businesses

April 8, 2020

With the economic effects of the coronavirus pandemic likely to be particularly devastating for small and medium-sized enterprises (SMEs), countries around the globe are faced with the task of determining how best to support such businesses.  A number of potential intervention types exist and are already being deployed, many of which have also been used in response to earlier financial crises. This post begins by describing the fundamental challenge: to provide SME assistance quickly and on a large scale.  It next examines each of the primary tools governments can use to extend assistance to SMEs on such a scale. In so doing, it provides examples of the use of these tools drawn from the current situation and previous crises. The post then presents a detailed analysis of the framework for SME assistance established in the United States by the recently adopted CARES Act as one example of how interventions can be combined to support SMEs.  It concludes by offering some takeaways about why certain SME assistance interventions may be preferable to others in given contexts.

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Loan Guarantee Programs May Include Nonbanks

March 20, 2020

Loan guarantee programs that involve nonbank lenders may be more effective than bank-only programs at getting credit quickly to small businesses that need it during the coronavirus crisis.

Small and medium-sized enterprises (SMEs) play a major role in the world economy, representing roughly 90% of businesses and 50% of employment worldwide. Many countries operate credit guarantee programs to encourage lending to SMEs. These programs are typically limited to bank loans. For example, the UK launched a Coronavirus Business Interruption Loan Scheme this week, taking advantage of existing programs, but the program is limited to forty previously accredited bank lenders. 

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Making SME Credit Guarantee Programs Affordable: Subsidized Interest Payments for an Initial Period

March 20, 2020

The coronavirus pandemic has severely affected small businesses across the world and forced many to close temporarily. Several countries have provided relief to help them cover their fixed costs until social conditions return to normal. Government-guaranteed loans can help, but a small business may hesitate to take on new debt that only adds to its monthly fixed costs.

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Credit Guarantee Programs for Small and Medium-Sized Enterprises

March 19, 2020

With the economic fallout from the coronavirus pandemic likely to have a particularly significant impact on small and medium-sized enterprises (SMEs), countries around the world have adopted or are considering measures intended to support such businesses.  One common tool for doing so, even in non-crisis times, is an SME credit guarantee, a program pursuant to which governments encourage banks to lend to SMEs by at least partially guaranteeing those loans. While evaluations of these programs are somewhat limited and the evidence mixed, when an event like the Asian Financial Crisis or the Global Financial Crisis occurs, countries often expand existing SME credit guarantee programs to make them more responsive to crisis conditions and/or develop new programs specifically targeted to the crisis.

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