UK credit and discouragement during the GFC

UK credit and discouragement during the GFC The availability of credit to entrepreneurs with good investment opportunities is an important facilitator of economic growth. Under normal economic 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 restrictions. One particularly interesting, and under-researched, 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 population. Further analysis implies that 55.6 % of discouraged borrowers would have got loans had they applied. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Small Business Economics Springer Journals

UK credit and discouragement during the GFC

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Publisher
Springer US
Copyright
Copyright © 2016 by Springer Science+Business Media New York
Subject
Business and Management; Management; Microeconomics; Entrepreneurship; Industrial Organization
ISSN
0921-898X
eISSN
1573-0913
D.O.I.
10.1007/s11187-016-9745-6
Publisher site
See Article on Publisher Site

Abstract

The availability of credit to entrepreneurs with good investment opportunities is an important facilitator of economic growth. Under normal economic 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 restrictions. One particularly interesting, and under-researched, 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 population. Further analysis implies that 55.6 % of discouraged borrowers would have got loans had they applied.

Journal

Small Business EconomicsSpringer Journals

Published: Jun 6, 2016

References

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