The availability of credit to entrepreneurs with good investment opportunities is an important facilitator of economic growth. Under normal eco- nomic conditions, most entrepreneurs who requested loans receive them. In a global financial crisis, popular opinion is that banks are severely restricting lending to smaller businesses. This assumes that low levels of investment are caused by supply-side restrictions in the credit market. Little is said about potential changes in the demand for credit and how it is influenced by entrepreneurs’ perceptions about supply-side restric- tions. One particularly interesting, and under-re- searched, group of small businesses is that who have potentially good investment opportunities, but are discouraged from applying for external funding as they fear rejection. In this study, we question whether these entrepreneurs were correct in their assumptions. We find that levels of discouragement are quite low in general at 2.7 % of the total smaller business popu- lation. Further analysis implies that 55.6 % of dis- couraged borrowers would have got loans had they applied.
|Number of pages||26|
|Journal||Small Business Economics|
|Publication status||Published - 6 Jun 2016|
- Small business finance
- Credit rationing
- Credit discouragement
- Bank lending