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The Small Firm Financing Premium in Europe: Where and When Do Small Firms Pay the Most?

In: Access to Bank Credit and SME Financing

Author

Listed:
  • Sarah Holton

    (European Central Bank)

  • Fergal McCann

    (Central Bank of Ireland)

Abstract

A key feature of the recent European crisis has been a sharp divergence in financing conditions for small and medium enterprises (SMEs) across countries. We document the evolution of the interest rate differential on loans below and above €1 million—the Small Firm Financing Premium (SFFP)—across banks and countries. A clear bifurcation in the SFFP between stressed and non-stressed economies, beginning in late 2010, is highlighted. At the bank level, we show that banks with higher domestic market shares charge higher SFFP, with this relationship being particularly strong in Spain, Italy and France, but non-existent in Germany. Strong evidence of a “bank lending channel” is provided, with increases in banks’ non-performing loan (NPL) and credit default swap (CDS) spreads being associated with increases in the SFFP.

Suggested Citation

  • Sarah Holton & Fergal McCann, 2017. "The Small Firm Financing Premium in Europe: Where and When Do Small Firms Pay the Most?," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Stefania Rossi (ed.), Access to Bank Credit and SME Financing, chapter 5, pages 121-147, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-3-319-41363-1_5
    DOI: 10.1007/978-3-319-41363-1_5
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