Do all firms have equal access to external financing?
Neil Kay, Gavin Murphy, Conor O'Toole, Iulia Siedschlag, Brian O'Connell 29 June 2014
Small and medium-size enterprises (SMEs) often report difficulties in obtaining external finance. Based on new research, this column argues that these difficulties are not due to greater financial risks associated with SMEs. Instead, they are the result of imperfections in the market for external finance that negatively affect smaller and younger enterprises. The same research has shown that these types of firms are also the most reliant on external finance to support their investment and growth.
The proportion of bank loan acceptances has fallen significantly following the crisis, along with the level of enterprise investment. The sharpest falls in both have been in countries hardest hit by the crisis. While in a number of countries – such as Finland, Malta, and Sweden – the declines have been modest, in others – such as in Bulgaria, Ireland, Denmark, Lithuania, Spain, and Greece – they have approached or exceeded 30%.
Figure 1. Percentage change in bank loan acceptances
EU policies Financial markets
investment, lending, credit, Finance, SMEs, credit rationing, borrowing, information asymmetries