Loan guarantees are popular policy responses during the COVID-19 crisis. Despite their prevalence, evidence of their effectiveness is sparse. We estimate the impacts of UK guarantees during the Great Recession, by exploiting firm-size eligibility restrictions. Guarantees increased four-year performance, labour-productivity, and employment growth, but not investment. Results are driven by firms with high-training-costs employees. They are consistent with the guarantees enabling a small number of financially constrained firms to retain workers that helped rebuild the businesses post-crisis. The results suggest that COVID-19 responses based on guarantees alone can be regressive, because poorer workers are more likely to have low-training-costs jobs.
