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

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

Research output: Contribution to journalArticle

53 Citations (Scopus)

Abstract

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.
LanguageEnglish
Pages399-418
Number of pages20
JournalSmall Business Economics
Volume38
Issue number4
DOIs
Publication statusPublished - 14 Apr 2012

Fingerprint

Bank debt
Loans
Small firms
Bank loans
Small and medium-sized enterprises
Empirical evidence
Proportion
Postal survey
Banking relationships
Credit constraints

Keywords

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

Cite this

Freel, M. ; Carter, S.L. ; Tagg, Stephen ; Mason, Colin. / The latent demand for bank debt : characterizing 'discouraged borrowers'. In: Small Business Economics. 2012 ; Vol. 38, No. 4. pp. 399-418.
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The latent demand for bank debt : characterizing 'discouraged borrowers'. / Freel, M.; Carter, S.L.; Tagg, Stephen; Mason, Colin.

In: Small Business Economics, Vol. 38, No. 4, 14.04.2012, p. 399-418.

Research output: Contribution to journalArticle

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