As a means of mitigating perceived financial constraints governments in many nations have adopted credit guarantee schemes: programs through which guarantors–often governments, that is, tax payers–share with lenders some of the default risk posed by small- and medium-sized enterprise (SME) borrowers. The Canada Small Business Financing Program has provided government guarantees of bank loans to SMEs since 1961. With current lending volumes of approximately $1 billion annually, the federal government faces a significant contingent liability at a time when it is attempting to reduce deficits. This work identifies the factors that most expose the government guarantor to risk of default, finding that age of firm is a key determinant of risk. The work also finds that the costs to taxpayers of honoring defaults is more than compensated from incremental tax revenues and the fees paid by borrowers. The program also supports substantial job creation.

Additional Metadata
Keywords credit guarantee schemes, loan default, risk factors
Persistent URL dx.doi.org/10.1080/08276331.2015.1088301
Journal Journal of Small Business and Entrepreneurship
Citation
Nitani, M. (Miwako), & Riding, A.L. (2014). Risk factors and the Canada Small Business Financing Program. Journal of Small Business and Entrepreneurship, 27(3), 251–274. doi:10.1080/08276331.2015.1088301