Distributing Favor or Capital? Partisan Alignment and Electoral Incentive in SBA 7 (a) Loan Program

• In Event: National Policymaking

Abstract

Research Purpose
The U.S. Small Business Administration (SBA) 7(a) loan program is a cornerstone of federal support for small businesses, yet its distribution remains under-scrutinized through the lens of political economy. While federal assistance is designed to meet economic needs, distributive politics theory suggests that presidents may leverage such programs for political gain. This study investigates the influence of partisan alignment and electoral incentives on the allocation of SBA 7(a) loans, asking whether presidents strategically direct financial capital to specific constituencies to fulfill electoral objectives rather than purely equitable policy goals.

Methodology
This research utilizes a comprehensive panel dataset of 3,077 U.S. counties over a 13-year period (2010–2022), totaling over 40,000 observations. To identify causal patterns, the study employs a two-way fixed effects (TWFE) ordinary least squares (OLS) model, controlling for both county-level time-invariant heterogeneity and year-specific national shocks. The dependent variable is the total annual SBA loan amount per county. Key independent variables include the electoral margin of victory (to measure competition), county-level partisan alignment with the president, and a strategic interaction term capturing aligned counties within opposition majority states.

Findings
The empirical analysis reveals strong evidence of electoral particularism. Competitive counties those with a narrow margin of victory in the previous presidential election receive significantly higher loan amounts, with a one percentage-point increase in the victory margin associated with a $22,000 decrease in loan allocation. While general partisan alignment alone is not a significant predictor, a nuanced strategic pattern emerges i.e. partisan aligned counties located within "opposition majority" states receive approximately $595,000 more in loans than their counterparts. This suggests that presidents strategically deploy federal credit to reward and reinforce their base in electorally hostile territories.

Policy Implications
These findings contribute to the literature on "particularism" in federal spending, demonstrating that even loan based assistance programs are susceptible to strategic political targeting. For public administration scholars, the results highlight a critical tension between "good public policy" based on economic need and the strategic realities of distributive politics. The study underscores the need for greater transparency and oversight in the administrative processes governing federal loan allocations to ensure that capital is distributed based on economic merit rather than electoral map making.

Author

• Anil Niroula, Florida International University
  Presenting Author