Is there a debt finance gap relating to Scottish SMEs? A demand-side perspective

This paper investigates whether or not there is evidence of market failure in the provision of bank finance to Scottish SMEs. The key question is whether SMEs have been experiencing difficulties because of the unsuitability of the business case they were putting to the banks or because of sub-optima...

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Bibliographic Details
Published in:Venture capital (London) 2010-07, Vol.12 (3), p.173-192
Main Authors: North, David, Baldock, Robert, Ekanem, Ignatius
Format: Article
Language:English
Subjects:
Access to credit
Bank loans
Banks
Business management
Corporate finance
Credit risk
debt finance
Debt financing
Debt management
early stage businesses
Economic conditions
Loan approval procedures
Manufacturers
Manufacturing
Market failure
Polls & surveys
Scotland
Small & medium sized enterprises-SME
Small and medium sized enterprises
SMEs
Startups
United Kingdom
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Summary:This paper investigates whether or not there is evidence of market failure in the provision of bank finance to Scottish SMEs. The key question is whether SMEs have been experiencing difficulties because of the unsuitability of the business case they were putting to the banks or because of sub-optimal lending practices. The paper draws upon evidence from the 2006 Annual Small Business Survey (Scotland), based on a survey of 1014 Scottish SMEs, and a follow-up in-depth survey of 39 SMEs that had reported problems in accessing bank finance. While the findings show that less than one-fifth of the firms trying to access bank finance encountered problems and that only a small minority had to abandon their projects completely as a result, both start-up and early stage businesses and manufacturing SMEs were disproportionately likely to experience problems. These were largely attributed by owner-managers to their lack of a track record of debt management in the case of young businesses and difficulties of providing the necessary collateral in the case of manufacturing SMEs. The risks associated with projects involving product and market diversification was also a factor. The paper concludes that these funding gaps are likely to have become larger since 2007 as a result of the credit crunch.
ISSN:1369-1066
1464-5343
DOI:10.1080/13691061003658670