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Finance Companies and Small Business Borrowers: An Empirical Investigation


  • George Haynes

    (Montana State University)

  • Myles Watts

    (Montana State University)


Finance companies have been perceived as isolated and insignificant lenders, attracting high risk borrowers and charging these borrowers relatively high prices. Using the 1988 National Survey of Small Business Finance, this study examines the relationship between finance companies and other lenders, describes the characteristics of borrowers attracted to finance companies and assesses whether finance companies charge higher loan prices and impose more stringent collateral requirements on their borrowers than other lenders. This study refutes the popular notion that finance companies are not mainstream lenders by suggesting that finance companies are an important source of financial capital attracting borrowers similar to those attracted by commercial banks and charging these borrowers competitive prices.

Suggested Citation

  • George Haynes & Myles Watts, 1996. "Finance Companies and Small Business Borrowers: An Empirical Investigation," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 5(1), pages 17-42, Spring.
  • Handle: RePEc:pep:journl:v:5:y:1996:i:1:p:17-42

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    References listed on IDEAS

    1. Gregory E. Elliehausen & John D. Wolken, 1990. "Banking markets and the use of financial services by small and medium- sized businesses," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 801-817.
    2. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
    3. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
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    More about this item


    Finance Companies; Small Business; Lending; Borrowing;

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages


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