The frequent observation that smaller enterprises tend to face tighter borrowing constraints has made credit easing policies targeting small firms a popular policy in many countries. However, the record of such policies in enhancing employment and production is mixed. Understanding how the circumstances, design, and implementation of credit easing policies shape their outcomes is important if the policymakers are to avoid wasteful choices. But, research on this topic has been limited. In this paper, we contribute to that literature by examining the case of a credit easing policy for small firms in Iran during 2005-2013, which was intended to boost employment and production. We take advantage of the threshold effect of the policy and a large panel dataset of Iran’s manufacturing plants to identify and estimate the effects of the credit extension on small firms. We find that the policy had no tangible positive effect on employment and output of those firms. It did induce small firms to acquire additional machinery, building, and land in the first year of the program. But that did not translate into net employment gain. After the first year, the beneficiary enterprises only purchased more land, possibly as a hedge against rising inflation and instability, with direct and indirect detrimental effects on employment and production. We argue that this pattern of credit use may be rooted in the lax implementation of the credit extension policy and the highly expansionary and destabilizing nature of many populist policies accompanying it.