The Impact of Credit Availability on Small Business Exporters


Full Report

Research Summary

April 2013                                               No. 404

The Impact of Credit Availability on Small Business Exporters

By Joe Peek, Ph.D., Lexington, KY 40502 [50] pages.
Under contract number SBAHQ-11-M-0206


A dramatic drop in U.S. exports during the 2008-
2009 financial crisis and Great Recession stimulated
interest in investigating the relationship between trade
finance and small business exports. This research
examines whether and how the tightening of credit
affects small firm exporters.


The dramatic decline in international trade flows in
2008-2009 was far beyond what might have been
expected based on historical patterns. According to
figures from the U.S. Census Bureau and the Bureau
of Economic Analysis, the value of U.S. exports of
goods and services declined from $1.84 trillion in
2008 to $1.58 trillion in 2009, a 14 percent drop,
compared with a 6.0 percent decline in exports in the
previous recession (2000-2001) and steady increases
in exports in nearly every other year since 1992.
One factor that many have cited to account for the
unusually large decline is a supply effect resulting
from credit tightening. Credit is especially important
for exporters because of the need to finance their
working capital to compensate for the riskiness of
cross-border transactions and for the longer transportation
time exporters need compared with domestic
producers. In short, the deterioration in the ability or
willingness of banks to provide financing is likely to
adversely affect exporting firms to a greater degree
than firms producing for the domestic market.

Previous literature has established that small firms
rely disproportionately more on bank credit than
larger firms. Thus, a tightening of credit might be
expected to have a greater adverse effect on small
and medium-sized enterprises (SMEs) than on larger
firms with access to national and international credit

This study investigates the impact on exporting
SMEs of bank health, including differences by industry
and state. The researcher explores various factors
that might lead to differences in shares of exports in
an industry. These include credit availability, general
macroeconomic conditions, and the financial
environment measured in terms of the industry’s
dependence on external finance. At the state level
the analysis examines the impact of bank health on

Overall Findings

The key finding is that the small firm share of
exports declines in response to deterioration in bank
health; the adverse impact is greater for exporters
in industries that rely more on external finance. The
evidence is stronger for smaller firm size classes.
Specific findings include:

• The adverse effects of deterioration in bank health
appear concentrated among exporting firms with
fewer than 100 employees.

- Effects are evident for the smallest firm size
class (fewer than 20 employees) and they remain
when the threshold is raised to firms with fewer
than 100 employees.

- These results hold for alternative measures of
bank health including capital, liquidity, and nonperforming
loan ratios.

• Evidence for the state-level analysis indicates that
local bank health matters.

- Results suggest that deterioration in large bank
health within a state, measured by the capital
ratio and nonperforming loan ratio, has stronger
adverse effects on the exports of SMEs than on
larger firms.

- The state-level analysis is limited because the
firm size data cannot be disaggregated into size
classes for categories below 500 employees.

Policy Implications

These findings suggest policies that would:

• Increase SME exporting by improving their access
to credit and financing through steps to improve the
health of the banking system.

• Encourage the Consumer Financial Protection
Bureau to examine the constraints on banks and
FICO scores to improve credit and lending to small
business exporters.

• Increase U.S. Export Assistance Centers’ (SBA,
Commerce, Ex-Im Bank, and others) assistance to
small businesses especially businesses with fewer
than 20 employees.

Scope and Methodology

The key variable in this study is the SME share of
the dollar value of total exports. It is expected that
smaller firms were hit harder by the financial crisis
than larger firms because of the greater reliance of
smaller firms on bank finance and the perception that
smaller firms expose lenders to greater risk.

The primary data for this study come from four
separate sources. These include the U.S. Department
of Commerce’s International Trade Administration
Exporter Database (ITAED), the Federal Deposit
Insurance Corporation’s Summary of Deposits
(SOD), the Federal Reserve’s Consolidated Reports
of Condition and Income (Call Reports), and

The research uses regression methods to test the
hypotheses in terms of both industry-level and state-
level analysis. Three alternative firm size classes are
considered for the industry-level analysis: (1) firms
with fewer than 20 workers; (2) firms with fewer
than 100 workers, and (3) firms with fewer than 500
workers. However, for the state-level analysis, only
one firm size distinction is available—fewer than
500 workers and 500 or more workers.

The dependent variable for the industry-level analysis
is the SME share of the dollar volume of total
exports in an industry. The equation contains both
time and industry fixed effects—the former controls
for general macroeconomic conditions, while the latter
controls for systematic differences across industries.
The analysis based on the ITAED data disaggregated
by 21 industries and the independent variables
include a measure of external finance dependence by
industry and measures of credit availability—including
an interest rate spread as well as several measures
of bank health. The external finance dependence
(EFD) is calculated using individual firm data from
Compustat. Alternative bank health measures are calculated
at the national level using the FDIC’s problem
bank list and Call Report data.

For the state-level analysis, the ITAED data are
disaggregated by state and the dependent variable is
the SME share of the total dollar volume of exports
for firms headquartered in the state. Independent
variables include alternative measures of state bank
health and both state and time fixed effects. The state
health variables include the same three bank health
indicators used in the industry-level analysis.

This report was peer-reviewed consistent with
Advocacy’s data quality guidelines. More information
on this process can be obtained by contacting
the director of economic research by email at or by phone at (202) 205-6533.

Additional Information

The full text of this report and summaries of other
studies of the U.S. Small Business Administration’s
Office of Advocacy are available on the Internet at

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This document is a summary of the report identified above, developed under contract for the Small Business Administration, Officeof Advocacy. As stated in the report, the final conclusions of the full report do not necessarily reflect the views of the Office of Advocacy. This summary may contain additional information, analysis, and policy recommendations from the Office of Advocacy.


Keywords: Exports, Exporters, Credit, Small and medium sized enterprises, International trade, Bank health, Capital ratio, Nonperforming loan ratio, External finance dependence, Macroeconomic conditions, Financial environment, State-level, Industry-level, Firm size, Financial crisis, FDIC, Call Report