How does Social Capital Impact SBA Loan Approvals in US Counties?

Abstract

The purpose of this paper was to evaluate the determinants of the Small Business Administration (SBA) gross loan approval in a US county. Our main research variable was a county’s social capital. We hypothesised that the higher the county’s social capital, the larger the SBA gross loan approval for the county. We also evaluated the impact of other control variables on SBA gross loan approvals. The social capital of individual US counties was available for 1990, 1997, 2005, 2009, and 2014 while other variables were not available as early as 1990. Therefore, we limited our research period to 1997 through 2014. We followed the published literature and linearly interpolated social capital for the non-observed years. The final sample included more than 30,000 county-year observations. The regression results showed that a county’s social capital was a positive and significant determinant of its aggregate SBA gross loan approvals. The results also showed that total banking assets, number of banking employees, population, per capita income, and whether the county is rural were also positive and significant determinants of aggregate SBA gross loan approvals in a US county. In addition, increases in a county’s total banking loans and leases, and its unemployment level were negatively and significantly associated with SBA gross loan approvals. All the regression coefficients were significant at the 1% level.

Keywords

• social capital
• sba loans
• small business lending
• business loan guarantees