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Public guarantees: a countercyclical instrument for SME growth. Evidence from the Spanish Region of Madrid

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This paper analyses the effects that public credit guarantees have on SME business activity and investment. We focus the study on the main regional mutual guarantee institution in the Spanish Region of Madrid, covering two distinct stages of the economic cycle and credit environments: first, the full range of the country’s financial crisis with credit constraints (2009–2011), and later, the recovery stage with credit expansion (2012–2015). Using propensity score matching based on economic activity and company size, we show that guarantees allow for the relaxation of credit constraints, driving turnover and investment during both recession and growth. We also find that mutual guarantee schemes constituted a greater stimulus for firms during contraction; thus, they can act as countercyclical policies. Moreover, although guarantees had a substantial effect on all small companies (those with fewer than 50 employees), they had the greatest impact on microenterprises (those with fewer than 10 employees). We show the activities for which guarantees constitute a greater boost, which may inform public-policy designs for specific types of business.

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  1. Consequently, entrepreneurs and SMEs are optimal candidates for alternative or supplementary solutions (Casey and O’Toole 2014) such as trade credits, guarantees, factoring, leasing or renting, seed capital, venture capital, lease-backs, crowdfunding, direct lending and private (including so-called fintech) placements.

  2. Beck et al. (2010) described 76 partial loan-security schemes from 46 countries. In Europe, these schemes tended to conform to two models: public guarantee programmes and mutual guarantee institutions (MGIs); these styles coexisted in some countries. MGIs are most developed in Germany, France, Spain and Italy (Columba et al. 2010), where they play an increasingly important role. Europe-wide, these schemes are regulated by EU Regulation 575/2013 and EU Directive 36/2013; their purpose is to secure loans for partners in the form of guarantees (though not guarantee insurance) to finance those partners’ business operations. These semi-public schemes enable governments to focus support on target groups by designing financing programmes that are geared to companies or initiatives of interest.

  3. In Spain, this type of data availability is infrequent, as evidenced by the scarcity of studies related to this country, despite having a large number of entities (18) of (predominantly) regional scope with public-involved support, encouragement and decision making.

  4. The appendix is titled as Electronic Supplementary Material.

  5. Even though the MGI’s corporate purpose is to favour SME and entrepreneur access to credit and it consequently has no large-corporation partners, we distinguished a group for large corporations because headcount is only one of the three criteria used per EC recommendations. We found references in the client/partner database that were awarded a guarantee in the period analysed; their inclusion allowed for a comparison to the region’s entire business population.

  6. The authors’ calculation excluded outliers (i.e., guarantees that were over 50% of the prior year’s total assets).


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Correspondence to Rodrigo Martín-García.

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Table 6 Sampling
Table 7 Madrilenian companies by economic activity (2009–2015)
Table 8 Variables
Table 9 Differences in mean turnover growth: partners vs non-partners
Table 10 Differences in mean asset growth: partners vs non-partners
Table 11 Stimulus afforded by guarantees in the year of the award
Table 12 Guarantee award vs turnover growth
Table 13 Guarantee award vs asset growth

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Martín-García, R., Morán Santor, J. Public guarantees: a countercyclical instrument for SME growth. Evidence from the Spanish Region of Madrid. Small Bus Econ 56, 427–449 (2021).

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