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 l...

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Bibliographic Details
Published in:Small business economics 2016-12, Vol.47 (4), p.1049-1074
Main Authors: Cowling, Marc, Liu, Weixi, Minniti, Maria, Zhang, Ning
Format: Article
Language:English
Subjects:
Bank credit
Banks
Business and Management
Business entities
Credit rationing
Economic growth
Economic recessions
Employment
Entrepreneurial finance
Entrepreneurs
Entrepreneurship
Finance
Funding
Industrial Organization
Investment credit
Investments
Loans
Management
Microeconomics
Small business
Small business loans
Small businesses
Studies
Supply and demand
Venture capital
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Summary: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.
ISSN:0921-898X
1573-0913
DOI:10.1007/s11187-016-9745-6