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UK credit and discouragement during the GFC

Marc Cowling (), Weixi Liu, Maria Minniti and Ning Zhang ()
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Weixi Liu: University of Bath School of Management
Maria Minniti: Syracuse University Whitman School of Management

Small Business Economics, 2016, vol. 47, issue 4, 1049-1074

Abstract: Abstract 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.

Keywords: Small business finance; Credit rationing; Credit discouragement; Bank lending; L26; G21; D82; D52 (search for similar items in EconPapers)
Date: 2016
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