The latent demand for bank debt: characterizing 'discouraged borrowers'

M. Freel, S.L. Carter, Stephen Tagg, Colin Mason

Research output: Contribution to journalArticlepeer-review

80 Citations (Scopus)
207 Downloads (Pure)


Concerns that small firms encounter credit constraints are well entrenched in the literature, despite widespread empirical evidence that a relatively small proportion of small firms have their loan applications rejected. However, many firms may be discouraged from applying for fear of rejection. These businesses are the focus of this paper. Based on responses to a large-scale postal survey of UK small and medium-sized enterprises (SMEs), we find that twice as many businesses were discouraged from applying for a bank loan than had their loan request denied. More particularly, we observe a number of distinguishing characteristics of 'discouraged borrowers' (relative to applicants). These include: strategy, sector, prior entrepreneurial experience and banking relationships. The implications of our findings for policy and future research are briefly discussed.
Original languageEnglish
Pages (from-to)399-418
Number of pages20
JournalSmall Business Economics
Issue number4
Publication statusPublished - 14 Apr 2012


  • small firms
  • funding gap
  • banks
  • loan finance
  • loan denial
  • discouragement


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