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Who needs credit and who gets credit? Evidence from the surveys of small business finances

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  • Cole, Rebel
  • Sokolyk, Tatyana

Abstract

We use data from the Surveys of Small Business Finances to classify small privately held firms into four groups based upon their need for credit. Our results reveal strong and significant differences among each of these four groups of firms. Firms that report no need for credit are significantly less levered, more liquid, older, and of higher credit quality than are firms that report a need for credit, and their owners are older, are more likely to be white, are more creditworthy, and have fewer bank and nonbank relationships. Firms reporting that they were discouraged from applying for credit significantly outnumber and are significantly different from firms that applied for and were denied credit on a number of dimensions such as size, profitability, owner age, and the number of sources of financial services. Our counterfactual analysis indicates that about one in three discouraged borrowers would have received credit had they applied for credit. Denied borrowers differ from approved borrowers across numerous characteristics, as previously documented in the literature.

Suggested Citation

  • Cole, Rebel & Sokolyk, Tatyana, 2016. "Who needs credit and who gets credit? Evidence from the surveys of small business finances," Journal of Financial Stability, Elsevier, vol. 24(C), pages 40-60.
  • Handle: RePEc:eee:finsta:v:24:y:2016:i:c:p:40-60
    DOI: 10.1016/j.jfs.2016.04.002
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    More about this item

    Keywords

    Availability of credit; Capital structure; Credit rationing; Discouraged; Loan approval/denial; Small business;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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