Overview

Abstract (English)

SMEs depend on access to commercial loans to fuel their growth and viability._x000D_
Lenders, however, are aware of the high rates of failure among SMEs and_x000D_
lenders also face asymmetric information. Because of SMEs’ contributions to_x000D_
employment and economic development, governments in many modern_x000D_
economies have expanded existing credit guarantee schemes (CGSs) or they_x000D_
have initiated new ones: CGSs are governments’ “instrument of choice for …_x000D_
[improving] access to finance by SMEs” (Cusmano, 2018; p. 11). CGSs look to_x000D_
encourage commercial lenders to approve loans to SME borrowers that are_x000D_
relatively riskier than those lenders would have approved absent the loan_x000D_
guarantee. However, flaws in CGS design might enable lenders to seek surplus_x000D_
profits though actions related to moral hazard and adverse selection._x000D_
Accordingly, we examine empirically whether loans approved under the terms_x000D_
of a particular credit guarantee program (that of Canada) would have been_x000D_
approved absent the program and the extent to which firms whose loan_x000D_
applications were approved are any riskier. We find that the level of_x000D_
incrementality has declined over time. The Canadian government had modified_x000D_
its credit guarantee program programs to allow for larger loans and for larger_x000D_
firms to access the program. We do not find evidence that the CSBFP induces_x000D_
lenders to engage in risk-taking behaviors. It appears that the coverage limits_x000D_
the CSBF imposes is sufficiently low to discourage lenders from lending to_x000D_
overly risky borrowers.

Abstract (French)

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