The Korean government has invested a significant amount of resources through credit guarantee funds for promoting SMEs' survival, performance and R&D investments. This study attempts to identify the determinants of providing credit guarantees and estimates their effects on firms' R&D expenditures. It takes into account the heterogeneity of various characteristics of firms when looking at credit guarantees and in-house R&D investment relationships. This study identified factors that enhance the efficiency of funds and their effects on firms' R&D investment behaviours. It enables feedback effects on the public funds that were selected by the guaranteed firms. It proposes a number of policy measures to promote a better balance between public and private investments to reduce risks of business failures.