When suppliers (SMEs) face emergencies that cause demand disruptions, they usually default on credit due to cash flow problems, and how the government incentivizes banks to extend credit to aid SME recovery remains an urgent issue. In this paper, a three-stage government-bank-supplier game model is constructed to examine whether banks offer credit extensions and optimal interest rate decisions, as well as the optimal level of suppliers’demand recovery effort under two different government subsidy policies, namely fiscal interest subsidies and tax preferences. Findings indicate that banks providing credit extensions should comprehensively consider the coefficient of the supplier’s recovery effort costs and fixed expenditure cost per cycle.Both policies encourage banks to extend credit, but only if the government budget meets the “subsidy threshold”.Government subsidies tend to prompt banks to raise interest rates, which in turn reduces the effort of suppliers and causes a decrease in social welfare.Consequently, the optimal government subsidy ratio is that which encourage banks to shift from not extending credit to extending credit. If the government budget is sufficient, it should opt for tax preference policy;otherwise, a fiscal interest subsidy should be chosen. Finally, considering information asymmetry in banks and the government separately, changes in equilibrium strategies are analyzed.