Factors Influencing Take-Up Rates on the Loan Guarantee Scheme

Marc Cowling and Nick Clay

Small Business Economics, 1995, vol. 7, issue 2, 52 pages

Abstract: This paper uses time-series analysis to model explicitly the take-up rate of the UK Government's Loan Guarantee Scheme over the 1980s. In doing so we consider the rationale for the scheme in the context of empirical and theoretical research into the financing of small businesses and in particular the nature of the small firm/bank relationship. To begin we discuss the history and evolution of the scheme from its inception in 1981. A theoretical model is then outlined in which LGS funds are used to maximize the utility of capital constrained entrepreneurs. Using this framework we find that the UK Government can do much to influence the levels of both take-ups and failures of firms on the scheme by directly altering the parameters. The scheme's apparent success as a [relatively] cost-effective job generation package suggests more could be done to extend the scheme to aid more start-up firms and those existing firms wishing to expand. Copyright 1995 by Kluwer Academic Publishers

Date: 1995
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