This paper estimates the degree of substitution between personal and small business credit for U.S. entrepreneurs between 2009 and 2018 using a novel, individual-level dataset. We identify the effect of business credit supply shocks by exploiting geographic variation in the market share of large banks, which sharply reduced credit supply to small businesses after the 2008 financial crisis. This contraction decreased total business credit by $13,572 per firm in our sample, and we find that entrepreneurs were able to substitute for about 68% of this decline with personal credit, driven by mortgages. Entrepreneurs with subprime credit scores, below-average income, and high credit utilization do not substitute lost business credit with personal credit. Thus, we find that the personal financial characteristics of entrepreneurs meaningfully affect overall access to external finance for small businesses.
Presenter: Julia Fonseca (University of Illinois Urbana-Champaign)
Coauthors: Jialan Wang (University of Illinois Urbana-Champaign and NBER)
Discussant: Manuel Adelino (Duke University)