This essay summarizes the results from three recent research studies on small business lending in the U.S. Each of these studies provides evidence for considering the question “Who takes the risks for funding SMEs?” The risks associated with funding small businesses are borne by numerous factions in our societies, including but not limited to entrepreneurs, bank lenders, and taxpayers. The incidence of risk-bearing across these factions varies with the business cycle, with innovations in lending technologies, and with differences in social infrastructure. Overall, the level of risk is lower when bank-borrow relationships are stronger.
Robert DeYoung is Harold Otto Chair of Economics Capitol Federal Distinguished Professor in Financial Markets and Institutions at the University of Kansas. He has published his research in well-acknowledged journals such as Journal of Banking and Finance, Journal of Finance, Journal of Financial Intermediation, Journal of Financial Stability, and Journal of Money, Credit, and Banking.