The Impact of Credit Availability on Small Business Exporters

Joe Peek, PhD, April 2013


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 markets.

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 exporting.

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.