Creating associations as a substitute for direct bank credit. Evidence from Belgium

Firms’ incentives to join up with other firms to apply collectively for a single loan are studied empirically in this paper. When several firms make a joint application for a single loan an association of firms is created. We identify the associations that had access to credit in Belgium over the period 2001-2011 and the firms that made up each association, observing the amount of credit that both the firms and the associations obtained from each financial institution they used. We analyse the amount of credit obtained by firms according to whether or not they belonged to an association, the likelihood of firms forming associations, the impact of belonging to an association on the amount of credit firms receive from banks and the effect of firms not obtaining any direct credit on the amount obtained by the associations formed by such firms. We also analyse whether associations formed by common-ownership firms are able to access more credit than other associations. We find that large and long-established firms are more likely to join up with other firms to make joint loan applications and that associations obtain more credit if all their members use the same bank as the association does to obtain credit. Furthermore, the lower a firm’s credit over the previous year, the more likely it is to form an association to obtain credit, and we show that associations comprising small firms with no credit history are especially credit constrained.