The latent demand for bank debt:characterizing discouraged borrowers

Freel, Mark and Carter, Sara and Tagg, Stephen and Mason, Colin (2012) The latent demand for bank debt:characterizing discouraged borrowers. Small Business Economics, 38 (4). pp. 399-418. ISSN 0921-898X

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Concerns that small firms encounter credit constraints are well entrenched in the literature, despite widespread empirical evidence that a relatively small proportion of small firms have their loan applications rejected. However, many firms may be discouraged from applying for fear of rejection. These businesses are the focus of this paper. Based on responses to a large-scale postal survey of UK small and medium-sized enterprises (SMEs), we find that twice as many businesses were discouraged from applying for a bank loan than had their loan request denied. More particularly, we observe a number of distinguishing characteristics of “discouraged borrowers” (relative to applicants). These include: strategy, sector, prior entrepreneurial experience and banking relationships. The implications of our findings for policy and future research are briefly discussed.

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Journal Article
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Small Business Economics
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26 Apr 2013 08:45
Last Modified:
11 Sep 2023 15:55