Access to Bank Credit and SME Financing by Stefania Rossi

By Stefania Rossi

This publication explores how the worldwide monetary and eu sovereign debt crises have compelled small-and-medium-sized companies (SMEs) to reconsider and adapt their investment concepts. on the center of the problem is the worsening entry to financial institution credits for such corporations. via this dialogue we learn the way the most important an knowing of SME-financing is to coverage makers, in mild of the truth that SMEs dominate the enterprise panorama in Europe and are the most drivers of employment, progress and innovation within the ecu financial system. Contributing chapters current professional research and examine many themes together with the issues confronted via SMEs in having access to financial institution credits and the price of investment and its determinants. specific consciousness is usually given to how credit-constrained companies may well reformulate their investment options via utilising replacement, non-bank, monetary assets, and the way regulators may perhaps help SMEs in broadening and enhancing their investment opportunities.

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From the firm’s point of view, a high level of creditor protection thus reduces the possibility to later renegotiate the terms of payment according to the new situation faced by the firm, which implicitly increases the risk that it can be forced to file for bankruptcy (Berkowitz and White 2004; Cressy 2006). 2 Neither a Borrower Nor a Lender Be!... 33 Prior research suggests that firms benefit from a high level of creditor and property rights protection as well as rigorous law enforcement by accessing credit under more favourable terms.

Our study aims at expanding on previous research in this area by examining the impact of the recovery rate of delinquent borrowers on both a firm’s propensity to file for a loan and a bank’s propensity to lend. Our focus is on young firms (younger than nine years) since these firms on the one hand depend more heavily on bank finance to grow (Cassar 2004) and on the other are characterized by greater information opacity (Berger et al. 2001). We rely on the Survey on the Access to Finance of Enterprises (SAFE) dataset from the European Central Bank, which collects directly information about access to credit, the use of different sources of finance, and liquidity and finance constraints from a sample of European firms.

Michaelas et al. (1999) provide empirical evidence about information and agency problems for SMEs when accessing finance. The main objective of this paper is to broaden the analysis of firm funding apart from bank lending in order to examine the extent to which firms diversify across different financing instruments. Replacing bank credit with equity financing would reduce the debt burden of the euro area non-financial corporate sector and the potentially negative impact of bank deleveraging on the economy.

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