Why do small businesses have difficulty in accessing bank financing?

This study investigates bank financing to small and medium-size enterprises (SMEs) and evaluates whether the difficulties of SMEs in accessing bank financing during a period of financial crisis are due to a reduction in the supply of credit, or to a decrease in the demand for credit. The results show that the macroeconomic setting matters: demand effects are unlikely to drive the decline in the stock of bank loans, while the supply of credit causes SMEs difficulties in accessing bank credit. During a crisis period, in particular, an increase in the risk of lenders leads to the reduced supply of credit and credit rationing (i.e. the bank lending channel). In a post-crisis period, SMEs with increased risk and decreased profits have great difficulties in securing bank loans (i.e. the borrower balance sheet channel). Taken together, these results suggest that supply effects initially emerge through the bank-lending channel and then shift to the borrower balance sheet channel over a period of financial crisis.

URI

http://hdl.handle.net/10454/19124

Version

Accepted manuscript

Citation

Harrison R, Li Y, Vigne SA et al (2022) Why do small businesses have difficulty in accessing bank financing? International Review of Financial Analysis. 84: 102352.

Link to Version of Record

https://doi.org/10.1016/j.irfa.2022.102352

Type

Article