Homeowners have easier and cheaper access to business credit

Benedikt Vogt, Wolter Hassink, Matteo Millone and Remco Mocking
Additional contact information
Wolter Hassink: UU
Matteo Millone: DNB
Remco Mocking: Ministry of Finance

No 420, CPB Discussion Paper from CPB Netherlands Bureau for Economic Policy Analysis

Abstract: Banks often demand collateral for business loans. Apart from business assets, for many small entrepreneurs their own home is the most important security they can offer. The interaction between the housing market and entrepreneurial credit can therefore amplify the consequences of an economic crisis. Because of declining collateral values, the probability of obtaining credit could be lower, making it more difficult to finance entrepreneurial activities. Between 2008 and 2013, real house prices declined by nearly 25 percent in the Netherlands. Such a decline in house prices can amplify the effect of an economic crisis via the credit channel for small entrepreneurs. In the economic literature this effect is known as collateral lending channel. In this study we answer three questions: to what extent did the decrease in house prices impact the incidence of bank credit of small companies? what is the relationship between the housing market status of an entrepreneur and the costs of credit? Is there, as a consequence, an association between the housing market status and entrepreneurial exits?

JEL-codes: G23 L26 R2 R31 (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-fdg, nep-isf and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:cpb:discus:420

DOI: 10.34932/bkwt-xx71

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