The authors of the article determined that industry composition of job losses failed to explain the deeper job declines among small firms, as these businesses were hit harder than large ones regardless of industry. While some small firms indeed experienced limited credit availability, this factor was a secondary driver of the difficulties they encountered, the authors wrote.

Nonfarm payroll employment began a downward trend in December 2007, which is considered to be the official start of the recession, according to the analysis citing National Bureau of Economic Research data.

In addition to producing greater job losses, the authors said the Great Recession differs from its predecessor in that small establishments were more negatively affected than larger ones. In the recent downturn, 40% of the overall employment decline can be attributed to losses at small businesses compared with 10% in the 2001 recession.

"Our examination of employment changes by firm size in each sector during the recession reveals that declines in small firms are larger than total sectoral percentage declines with the exception of manufacturing, which experienced a uniform impact across firm size," the report read.

According to balance sheet data presented in the U.S. Census Bureau's Quarterly Financial Report, bank loans represent two-thirds of the total debt of small firms compared with one quarter for larger firms. The authors pointed out that if credit market conditions deteriorate and the supply of bank credit dries up, the cost of external financing rises especially for small firms, which would face difficulty raising funds for regular operations or new investments.

As a number of sources have indicated, bank loans have declined significantly since the start of the recession. In particular, commercial and industrial loans fell approximately 20% from March 2008 to June 2010, according to the Fed's data. Credit card use by small business owners has also contracted.

A National Federation of Independent Business survey indicated that the number of small business owners using a credit card to pay business expenses decreased seven percentage points from 2008 to 2009.

"The deterioration of both real estate prices and the mortgage market has also negatively affected small business financing. Indeed, approximately 16% of small business owners have taken out home equity loans to finance operations or have used their homes as collateral for purchasing assets. The plunge in real estate prices has thus put further downward pressure on the borrowing capacity of these individual," the authors wrote.

Meanwhile, sales for small and large firms were similar until recently, according to the Fed report. Sales started to recover among large manufacturing firms in second quarter 2009 while sales of small firms have lagged and their recovery has been sluggish.

"Growth in inventories for small and large firms has fallen since fourth quarter 2008, but it has declined more sharply for small firms," the report said. This suggests that small businesses managed the fluctuation in sales through greater inventory adjustment.

The authors concluded that small firms attributed the relatively steep decline in jobs mostly to poor sales and economic uncertainty.

"Tightened access to credit and adverse financial conditions also constrained small firms but a more important factor was the decline in new investment and associated financing in the face of weak consumer demand for the firms' products and services."