Access to capital and small business growth: evidence from CRA loans data

Abstract In this paper, we use geographic and time variation of the Community Reinvestment Act (CRA) small business loans to study the effects of access to capital on small business growth in the USA at the county level. Grounded in theoretical models of imperfect financial markets and entrepreneurship dynamics, we use a panel of 3050 counties over the 1996–2010 period and find that, in general, CRA loans have a statistically significant positive effect on small business growth for the full sample of 3050 counties. This effect holds for different estimation techniques and robustness checks. More importantly, the results hold when we correct for the endogeneity of the CRA loans. The results also hold when the counties are classified into urban, rural, and low and moderate income.