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.
This is a preview of subscription content,to check access.
Access this article
Similar content being viewed by others
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.
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.
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.
The appendix is titled as Electronic Supplementary Material.
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.
The authors’ calculation excluded outliers (i.e., guarantees that were over 50% of the prior year’s total assets).
Abadie, A., & Imbens, G. W. (2016). Matching on the estimated propensity score. Econometrica, 84(2), 781–807. https://doi.org/10.3982/ECTA11293.
Albareto, G., & Finaldi Russo, P. (2012). Financial fragility and growth prospects: credit rationing during the crisis. Bank of Italy Occasional Paper No. 127. https://doi.org/10.2139/ssrn.2159210.
Arráiz, I., Meléndez, M., & Stucchi, R. (2014). Partial credit guarantees and firm performance: evidence from Colombia. Small Business Economics, 43(3), 711–724. https://doi.org/10.1007/s11187.014.9558.4.
Asdrubali, P., & Signore, S. (2015). The Economic Impact of EU Guarantees on Credit to SMEs–Evidence from CESEE Countries (no. 2015/29). EIF Working Paper. https://doi.org/10.1787/eco_surveys.jpn.2015.graph.51-en.
Autio, E., & Rannikko, H. (2016). Retaining winners: van policy boost high-growth entrepreneurship? Research Policy, 45(1), 42–55. https://doi.org/10.1016/j.respol.2015.06.002.
Bah, E. H., Brada, J. C., & Yigit, T. (2011). With a little help from our friends: The effect of USAID assistance on SME growth in a transition economy. Journal of Comparative Economics, 39(2), 205–220. https://doi.org/10.1016/j.jce.2011.03.001.
Bartelsman, E., Scarpetta, S., & Schivardi, F. (2005). Comparative analysis of firm demographics and survival: evidence from micro-level sources in OECD countries. Industrial and Corporate Change, 14(3), 365–391. https://doi.org/10.1093/icc/dth057.
Bartoli, F., Ferri, G., Murro, P., & Rotondi, Z. (2013). Bank–firm relations and the role of mutual guarantee institutions at the peak of the crisis. Journal of Financial Stability, 9(1), 90–104. https://doi.org/10.1016/j.jfs.2012.03.003.
Batsaikhan, M. (2017). Trust, trustworthiness, and business success: lab and field findings from entrepreneurs. Economic Inquiry, 55(1), 368–382. https://doi.org/10.1111/ecin.12359.
Beck, T., Demirgüç-Kunt, A., Laeven, L., & Maksimovic, V. (2006). The determinants of financing obstacles. Journal of International Money and Finance, 25(6), 932–952. https://doi.org/10.1016/j.jimonfin.2006.07.005.
Beck, T., Klapper, L. F., & Mendoza, J. C. (2010). The typology of partial credit guarantee funds around the world. Journal of Financial Stability, 6(1), 10–25. https://doi.org/10.1016/j.jfs.2008.12.003.
Bentzen, J., Madsen, E. S., & Smith, V. (2012). Do firms’ growth rates depend on firm size? Small Business Economics, 39(4), 937–947. https://doi.org/10.1007/s11187.011.9341.8.
Bertoni, F., Colombo, M. G., & Quas, A. (2018). The effects of EU-funded guarantee instruments of the performance of small and medium enterprises: Evidence from France (no. 2018/52). EIF Working Paper. https://doi.org/10.1016/j.eap.2018.09.011
Bloom, N., Sadun, R., & Van Reenen, J. (2009). The organization of firms across countries (no. w15129). National Bureau of Economic Research. https://www.nber.org/papers/w15129.pdf. Accessed 1 Apr 2019
Bottazzi, G., Secchi, A., & Tamagni, F. (2008). Productivity, profitability and financial performance. Industrial and Corporate Change, 17(4), 711–751. https://doi.org/10.1093/icc/dtn027.
Bottazzi, G., Secchi, A., & Tamagni, F. (2014). Financial constraints and firm dynamics. Small Business Economics, 42(1), 99–116.
Briozzo, A., & Cardone-Riportella, C. (2016). Spanish SMEs’ subsidized and guaranteed credit during economic crisis: a regional perspective. Regional Studies, 50(3), 496–512. https://doi.org/10.1080/00343404.2014.926318.
Bryson, A., Dorsett, R., & Purdon, S. (2002). The use of propensity score matching in the evaluation of active labour market policies. http://eprints.lse.ac.uk/4993/1/The_use_of_propensity_score_matching_in_the_evaluation_of_active_labour_market_policies.pdf. Accessed 1 Apr 2019
Calcagnini, G., Farabullini, F., & Giombini, G. (2014). The impact of guarantees on bank loan interest rates. Applied Financial Economics, 24(6), 397–412. https://doi.org/10.1080/09603107.2014.881967.
Caliendo, M., & Kopeinig, S. (2008). Some practical guidance for the implementation of propensity score matching. Journal of Economic Surveys, 22(1), 31–72. https://doi.org/10.1111/j.1467.6419.2007.00527.x.
Cannone, G., & Ughetto, E. (2014). Funding innovation at regional level: an analysis of a public policy intervention in the Piedmont region. Regional Studies, 48(2), 270–283. https://doi.org/10.1080/00343404.2011.653338.
Carbó-Valverde, S., Rodríguez-Fernández, F., & Udell, G. F. (2016). Trade credit, the financial crisis, and SME access to finance. Journal of Money, Credit and Banking, 48(1), 113–143. https://doi.org/10.1111/jmcb.12292.
Cardone-Riportella, C., Trujillo-Ponce, A., & Briozzo, A. (2013). Analyzing the role of mutual guarantee societies on bank capital requirements for small and medium-sized enterprises. Journal of Economic Policy Reform, 16(2), 142–159. https://doi.org/10.1080/17487870.2013.801317.
Carreira, C., & Teixeira, P. (2016). Entry and exit in severe recessions: lessons from the 2008–2013 Portuguese economic crisis. Small Business Economics, 46(4), 591–617. https://doi.org/10.1007/s11187.016.9703.3.
Casey, E., & O’Toole, C. M. (2014). Bank lending constraints, trade credit and alternative financing during the financial crisis: evidence from European SMEs. Journal of Corporate Finance, 27, 173–193. https://doi.org/10.1016/j.jcorpfin.2014.05.001.
Cerulli, G. (2015). Econometric evaluation of socio-economic programs. Advanced Studies in Theoretical and Applied Econometrics Series, 49. https://doi.org/10.1007/978.3.662.46405.2.
Clementi, G. L., & Hopenhayn, H. A. (2006). A theory of financing constraints and firm dynamics. The Quarterly Journal of Economics, 121(1), 229–265. https://doi.org/10.1093/qje/121.1.229.
Columba, F., Gambacorta, L., & Mistrulli, P. E. (2010). Mutual guarantee institutions and small business finance. Journal of Financial Stability, 6(1), 45–54. https://doi.org/10.1016/j.jfs.2009.12.002.
Cowan, K., Drexler, A., & Yañez, Á. (2015). The effect of credit guarantees on credit availability and delinquency rates. Journal of Banking & Finance, 59, 98–110. https://doi.org/10.1016/j.jbankfin.2015.04.024.
Cowling, M. (2010). The role of loan guarantee schemes in alleviating credit rationing in the UK. Journal of Financial Stability, 6(1), 36–44. https://doi.org/10.1016/j.jfs.2009.05.007.
Decramer, S., & Vanormelingen, S. (2016). The effectiveness of investment subsidies: evidence from a regression discontinuity design. Small Business Economics, 47(4), 1007–1032. https://doi.org/10.1007/s11187.016.9749.2.
Dehejia, R. (2005). Practical propensity score matching: a reply to Smith and Todd. Journal of Econometrics, 125(1–2), 355–364. https://doi.org/10.1016/j.jeconom.2004.04.012.
Dehejia, R. H., & Wahba, S. (2002). Propensity score-matching methods for nonexperimental causal studies. Review of Economics and Statistics, 84(1), 151–161. https://doi.org/10.1162/003465302317331982.
Delmar, F. (2006). Measuring growth: methodological considerations and empirical results. Entrepreneurship and the Growth of Firms, 1(1), 62–84. https://doi.org/10.4337/9781781009949.00011.
Delmar, F., Davidsson, P., & Gartner, W. (2003). Arriving at the high growth firm. Journal of Business Venturing, 18(2), 189–216. https://doi.org/10.1016/s0883.9026(02)00080.0.
Dhawan, R. (2001). Firm size and productivity differential: theory and evidence from a panel of US firms. Journal of Economic Behavior & Organization, 44(3), 269–293. https://doi.org/10.1016/s0167.2681(00)00139.6.
D'Ignazio, A., & Menon, C. (2012). The causal effect of credit guarantees for SMEs: evidence from Italy. The Scandinavian Journal of Economics. https://doi.org/10.1111/sjoe.12332.
Dvouletý, O., Čadil, J., & Mirošník, K. (2019). Do firms supported by credit guarantee schemes report better financial results 2 years after the end of intervention. The BE Journal of Economic Analysis & Policy, 19(1). https://doi.org/10.1515/bejeap.2018.0057.
Fazzari, S. M., Hubbard, R. G., Petersen, B. C., Blinder, A. S., & Poterba, J. M. (1988). Financing constraints and corporate investment. Brookings Papers on Economic Activity, 1988(1), 141–206. https://doi.org/10.2307/2534426.
Gai, L., Ielasi, F., & Rossolini, M. (2016). SMEs, public credit guarantees and mutual guarantee institutions. Journal of Small Business and Enterprise Development, 23(4), 1208–1228. https://doi.org/10.1108/jsbed.03.2016.0046.
Garcia-Tabuenca, A., & Crespo-Espert, J. L. (2010). Credit guarantees and SME efficiency. Small Business Economics, 35(1), 113–128. https://doi.org/10.1007/s11187.008.9148.4.
Gozzi, J. C., & Schmukler, S. (2015). Public credit guarantees and access to finance 27. European Economy, 101(2). https://doi.org/10.1596/978.0.8213.7080.3_ch7.
Hanousek, J., Kočenda, E., & Shamshur, A. (2015). Corporate efficiency in Europe. Journal of Corporate Finance, 32, 24–40. https://doi.org/10.1016/j.jcorpfin.2015.03.003.
Heckman, J. J., Ichimura, H., & Todd, P. (1998). Matching as an econometric evaluation estimator. The review of economic studies, 65(2), 261-294.
Holton, S., Lawless, M., & McCann, F. (2014). Firm credit in the euro area: a tale of three crises. Applied Economics, 46(2), 190–211. https://doi.org/10.1080/00036846.2013.824547.
Honohan, P. (2010). Partial credit guarantees: principles and practice. Journal of Financial Stability, 6(1), 1–9. https://doi.org/10.1016/j.jfs.2009.05.008.
Ipinnaiye, O., Dineen, D., & Lenihan, H. (2017). Drivers of SME performance: a holistic and multivariate approach. Small Business Economics, 48(4), 883–911. https://doi.org/10.1007/s11187.016.9819.5.
Koralun-Bereznicka, J. (2016). Corporate size-performance relation across countries and industries: findings from the European Union. International Journal of Economic Sciences, 5(1), 50–70. https://doi.org/10.20472/es.2016.5.1.004
Lechner, M. (2002). Program heterogeneity and propensity score matching: an application to the evaluation of active labor market policies. Review of Economics and Statistics, 84(2), 205–220. https://doi.org/10.1162/003465302317411488
Levitsky, J. (1997). Credit guarantee schemes for SMEs–an international review. Small Enterprise Development, 8(2), 4–17. https://doi.org/10.3362/0957.1329.1997.013.
Maffioli, A., Negri, J. A., Rodriguez, C. M., & Vazquez-Bare, G. (2017). Public credit programmes and firm performance in Brazil. Development Policy Review. https://doi.org/10.1111/dpr.12250.
Marino, M., Lhuillery, S., Parrotta, P., & Sala, D. (2016). Additionality or crowding-out? An overall evaluation of public R&D subsidy on private R&D expenditure. Research Policy, 45(9), 1715–1730. https://doi.org/10.1016/j.respol.2016.04.009.
Musso, P., & Schiavo, S. (2008). The impact of financial constraints on firm survival and growth. Journal of Evolutionary Economics, 18(2), 135–149. https://doi.org/10.1007/s00191.007.0087.z.
Navaretti, G. B., Castellani, D., & Pieri, F. (2014). Age and firm growth: evidence from three European countries. Small Business Economics, 43(4), 823–837. https://doi.org/10.1007/s11187.014.9564.6.
Neely, A. D., Adams, C., & Kennerley, M. (2002). The performance prism: the scorecard for measuring and managing business success. London: Prentice Hall Financial Times. https://doi.org/10.1108/13683040010377818.
Ng, H. S., & Kee, D. M. H. (2012). The issues and development of critical success factors for the SME success in a developing country. International Business Management, 6(6), 680–691. https://doi.org/10.3923/ibm.2012.680.691.
O’Keefe, S. (2004). Job creation in California’s enterprise zones: a comparison using a propensity score matching model. Journal of Urban Economics, 55(1), 131–150. https://doi.org/10.1016/j.jue.2003.08.002.
Oh, I., Lee, J. D., Heshmati, A., & Choi, G. G. (2009). Evaluation of credit guarantee policy using propensity score matching. Small Business Economics, 33(3), 335–351. https://doi.org/10.1007/s11187.008.9102.5.
Pagano, P., & Schivardi, F. (2003). Firm size distribution and growth. The Scandinavian Journal of Economics, 105(2), 255–274. https://doi.org/10.1111/1467.9442.t01.1.00008.
Peric, M., & Vitezic, V. (2016). Impact of global economic crisis on firm growth. Small Business Economics, 46(1), 1–12. https://doi.org/10.1007/s11187.015.9671.z.
Prabal, K. d., & Nagaraj, P. (2014). Productivity and firm size in India. Small Business Economics, 42(4), 891–907. https://doi.org/10.1007/s11187.013.9504.x.
Psillaki, M., & Daskalakis, N. (2009). Are the determinants of capital structure country or firm specific? Small Business Economics, 33(3), 319–333. https://doi.org/10.1007/s11187-008-9103-4.
Rajan, R. G., Zingales, L., & Kumar, K. B. (2001). What determines firm size? CRSP Working Paper No. 496; and USC Finance & Business Econ. Working Paper No. 01-1. https://doi.org/10.3386/w7208.
Riding, A. L., & Haines, G., Jr. (2001). Loan guarantees: costs of default and benefits to small firms. Journal of Business Venturing, 16(6), 595–612. https://doi.org/10.1016/S0883-9026(00)00050-1
Riding, A., Madill, J., & Haines, G. (2007). Incrementality of SME loan guarantees. Small Business Economics, 29(1–2), 47–61. https://doi.org/10.1007/s11187.005.4411.4.
Rosenbaum, P. R., & Rubin, D. B. (1983). The central role of the propensity score in observational studies for causal effects. Biometrika, 70(1), 41–55. https://doi.org/10.2307/2335942.
Rostamkalaei, A., & Freel, M. (2016). The cost of growth: small firms and the pricing of bank loans. Small Business Economics, 46(2), 255–272. https://doi.org/10.1007/s11187.015.9681.x.
Sánchez Martínez, L. C. & Gascón García-Ochoa, F. (2004). Veinticinco Años del Sistema de Garantías Español. Revista Asturiana de Economía, N 31/2004. https://doi.org/10.5944/rdp.58.59.2003.8902
Segura, A. C. F., de Lema, D. G. P., & Guijarro, A. M. (2004). Efectos económicos y financieros de las subvenciones a la inversión en la PYME. Un estudio empírico. Spanish Journal of Finance and Accounting, 33(123), 899–933. https://doi.org/10.1080/02102412.2004.10779534.
Smith, J. A., & Todd, P. E. (2001). Reconciling conflicting evidence on the performance of propensity-score matching methods. American Economic Review, 91(2), 112–118. https://doi.org/10.1257/aer.91.2.112.
Ughetto, E., Scellato, G., & Cowling, M. (2017). Cost of capital and public loan guarantees to small firms. Small Business Economics, 1–19. https://doi.org/10.1007/s11187.017.9845.y.
Vogel, R. C., & Adams, D. W. (1997). The benefits and costs of loan guarantee programs. The Financier, 4(1), 22–29.
Winker, P. (1999). Causes and effects of financing constraints at the firm level. Small Business Economics, 12(2), 169–181. https://doi.org/10.1023/a:1008035826914.
Zecchini, S., & Ventura, M. (2006). Public credit guarantees and SME finance. ISAE Working Paper 73. https://doi.org/10.2139/ssrn.947106
Zecchini, S., & Ventura, M. (2009). The impact of public guarantees on credit to SMEs. Small Business Economics, 32(2), 191–206. https://doi.org/10.1007/s11187.007.9077.7.
Conflict of interest
The authors declare that they have no conflict of interest.
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
About this article
Cite this article
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). https://doi.org/10.1007/s11187-019-00214-0