Public Guarantees for Small Businesses in Italy during Covid-19



This paper -  co-authored with F. De Marco (Bocconi) - assesses the effectiveness and allocation of credit through a public guarantee scheme for small businesses during the Covid-19 pandemic. In April 2020, the Italian government introduced a free 100% government guarantee on loans below €25,000 that requires no credit approval by banks. Using unique loan-level (i.e. bank-firm) data from the Italian Guarantee Fund, we first show that funds initially flowed to ex-ante financially fragile firms located in areas more affected by the pandemic, but were later received by all types of firms nationwide. Second, we show that local banking markets and lenders’ characteristics matter for the allocation of government guaranteed loans: firms located in areas with a higher presence of branches of large and low-capital banks were more likely to receive guaranteed credit. Moreover, we show that larger and less capitalized banks charge lower rates and disburse loans faster, suggesting that they are more efficient in providing government guaranteed credit. Our results shed light on the importance of understanding bank incentives for the allocation of public relief funds during a crisis.

Meeting ID:       946 2821 5447