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The role of demographics in small business loan pricing

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  • Doris Neuberger
  • Solvig Räthke-Döppner

Abstract

Demographic change influences the structure of the entrepreneurially active population, which may affect credit risk and financing conditions of small firms. Using bank internal data of small business loans in Germany, we find that the lending relationship plays a larger role for loan prices than demographics. Loan rates decrease with soft information gained through longer loan processing time and a larger number of accounts at the same bank. They increase with hard information about repayment arrears and reminders. Late payments have the largest influence on loan prices. Older entrepreneurs do not seem to be discriminated. Rather, the younger have to pay more because their loans and businesses are smaller and they lack liquidity to pay in time. Marital status and population density of the business district do not matter. This is good news for aging economies with a rising share of elderly and singles and growing disparities between peripheral and agglomerated regions. Copyright Springer Science+Business Media New York 2015

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  • Doris Neuberger & Solvig Räthke-Döppner, 2015. "The role of demographics in small business loan pricing," Small Business Economics, Springer, vol. 44(2), pages 411-424, February.
  • Handle: RePEc:kap:sbusec:v:44:y:2015:i:2:p:411-424
    DOI: 10.1007/s11187-014-9602-4
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    Cited by:

    1. Neuberger, Doris, 2015. "Financial Inclusion, Regulation, and Education in Germany," ADBI Working Papers 530, Asian Development Bank Institute.
    2. Ashiqur Rahman & Jaroslav Belas & Tomas Kliestik & Ladislav Tyll, 2017. "Collateral requirements for SME loans: empirical evidence from the Visegrad countries," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 18(4), pages 650-675, July.
    3. Francesco Ciampi & Alessandro Giannozzi & Giacomo Marzi & Edward I. Altman, 2021. "Rethinking SME default prediction: a systematic literature review and future perspectives," Scientometrics, Springer;Akadémiai Kiadó, vol. 126(3), pages 2141-2188, March.
    4. Rahman Ashiqur & Belas Jaroslav & Rahman M. Twyeafur, 2017. "Determinants of SME Finance: Evidence from Three Central European Countries," Review of Economic Perspectives, Sciendo, vol. 17(3), pages 263-285, September.
    5. Durguner, Sena, 2017. "Do borrower-lender relationships still matter for small business loans?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 50(C), pages 98-118.
    6. Kun Liang & Chen Zhang & Cuiqing Jiang, 2022. "Analyzing default risk among P2P platforms based on the LAS-STACK method by considering multidimensional signals under specific economic contexts," Electronic Commerce Research, Springer, vol. 22(1), pages 77-111, March.
    7. Mac an Bhaird, Ciarán & Vidal, Javier Sanchez & Lucey, Brian, 2016. "Discouraged borrowers: Evidence for Eurozone SMEs," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 44(C), pages 46-55.
    8. Wen-Yi Chen, 2017. "Demographic structure and monetary policy effectiveness: evidence from Taiwan," Quality & Quantity: International Journal of Methodology, Springer, vol. 51(6), pages 2521-2544, November.
    9. Mark Mietzner & Juliane Proelss & Denis Schweizer, 2018. "Hidden champions or black sheep? The role of underpricing in the German mini-bond market," Small Business Economics, Springer, vol. 50(2), pages 375-395, February.

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    More about this item

    Keywords

    Small business finance; Savings banks; Relationship lending; Soft information; Demographic change; D14; E43; G21; J14; L26;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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