Measuring the Default Risk of Small Business Loans: A Survival Analysis Approach
In this paper we report that, although medium-maturity loans originated under the SBA 7(a) loan guarantee program are targeted to small firms that fail to obtain credit through conventional channels, the default experience is comparable to that of a large percentage of loans held by larger commercial banks. We establish that the default behavior of these loans is time sensitive--as a loan seasons, the likelihood of default increases initially, peaks in the second year, and declines thereafter. Using a discrete-time hazard framework, we show that the likelihood of default is conditional on borrower, lender, and loan characteristics, and changes in economic conditions.
Recommended CitationGlennon, Dennis and Nigro, Peter J., "Measuring the Default Risk of Small Business Loans: A Survival Analysis Approach" (2005). Finance Journal Articles. Paper 16.