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New Ventures and their Credit Terms

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  • Aoife Hanley
  • Sourafel Girma

Abstract

Using UK bank data for 466 new venture loan applications, we explore the determinants of interest margin, the sanctioning decision and the amount borrowed when these factors are considered simultaneously. Collateral levels greatly influence the size of credits to new ventures, a finding consistent with existing work on firm foundation rates and assets (Black et al., Economic Journal 106, 60–75, 1996; de Meza and Webb, The Economic Journal 109, 153–163, 1999; Evans and Jovanovic, Journal of Political Economy 97(4), 808–827, 1989; Holtz-Eakin et al., 1994). Consistent with the RAND Journal of Economics 25, 334–347, Diversionary Models of debt, firms with larger credits enjoy discounted interest margins even when we have controlled for firm size. Copyright Springer 2006

Suggested Citation

  • Aoife Hanley & Sourafel Girma, 2006. "New Ventures and their Credit Terms," Small Business Economics, Springer, vol. 26(4), pages 351-364, May.
    • Handle: RePEc:kap:sbusec:v:26:y:2006:i:4:p:351-364
    DOI: 10.1007/s11187-005-3200-4
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    Cited by:

    1. Jae Kang & Almas Heshmati, 2008. "Effect of credit guarantee policy on survival and performance of SMEs in Republic of Korea," Small Business Economics, Springer, vol. 31(4), pages 445-462, December.
    2. Eric Tassel, 2023. "Crowdfunding investors, intermediaries and risky entrepreneurs," Small Business Economics, Springer, vol. 60(3), pages 1033-1050, March.
    3. Tensie Steijvers & Wim Voordeckers & Koen Vanhoof, 2010. "Collateral, relationship lending and family firms," Small Business Economics, Springer, vol. 34(3), pages 243-259, April.
    4. Moro, Andrea & Maresch, Daniela & Fink, Matthias & Ferrando, Annalisa & Piga, Claudio, 2020. "Spillover effects of government initiatives fostering entrepreneurship on the access to bank credit for entrepreneurial firms in Europe," Journal of Corporate Finance, Elsevier, vol. 62(C).
    5. Reabetswe Kgoroeadira & Andrew Burke & André Stel, 2019. "Small business online loan crowdfunding: who gets funded and what determines the rate of interest?," Small Business Economics, Springer, vol. 52(1), pages 67-87, January.
    6. Enrico Colombatto & Arie Melnik & Chiara Monticone, 2012. "Relationships and availability of credit to new small firms," ECONOMIA E POLITICA INDUSTRIALE, FrancoAngeli Editore, vol. 2012(1), pages 5-21.
    7. Andreas Dietrich, 2012. "Explaining loan rate differentials between small and large companies: evidence from Switzerland," Small Business Economics, Springer, vol. 38(4), pages 481-494, May.
    8. Sungida Rashid, 2021. "Do manufacturing firms in Bangladesh acquire ISO certificates to offset the handicap of credit constraints?," SN Business & Economics, Springer, vol. 1(1), pages 1-15, January.

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    More about this item

    Keywords

    collateral; entrepreneurship; information asymmetry; interest margins; D82; D81;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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