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Funding Self-Employment: The Role of Consumer Credit

  • Kneiding, Christoph


    (LFS Financial Systems)

  • Kritikos, Alexander S.


    (University of Potsdam, DIW Berlin)

This paper investigates whether self-employed households use consumer loans – in particular instalment loans and overdrafts – to finance business activities. Controlling for financial and non-financial household variables we show that self-employed households particularly use personal overdrafts significantly more often than employee households. When analyzing the correlation between consumer loan take-ups and consumption of self-employed in comparison to employee households, we find first evidence that overdrafts are used by self-employed to finance their business as well. This indicates that intermingling constitutes a financing strategy when regular business loans might not be accessible.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6093.

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Length: 26 pages
Date of creation: Oct 2011
Date of revision:
Publication status: published in: Applied Economics, 2013, 45 (13), 1741-1749
Handle: RePEc:iza:izadps:dp6093
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  1. Alexander Kritikos & Christoph Kneiding & Claas Christian Germelmann, 2009. "Demand Side Analysis of Microlending Markets in Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 229(5), pages 523-543, October.
  2. Allen N. Berger & Gregory F. Udell, 1998. "The economics of small business finance: the roles of private equity and debt markets in the financial growth cycle," Finance and Economics Discussion Series 1998-15, Board of Governors of the Federal Reserve System (U.S.).
  3. C. Mirjam van Praag & Peter H. Versloot, 2007. "What is the Value of Entrepreneurship? A Review of Recent Research," Jena Economic Research Papers 2007-061, Friedrich-Schiller-University Jena.
  4. Loretta J. Mester, 1997. "What's the point of credit scoring?," Business Review, Federal Reserve Bank of Philadelphia, issue Sep, pages 3-16.
  5. Caliendo, Marco & Fossen, Frank M. & Kritikos, Alexander S., 2006. "Risk Attitudes of Nascent Entrepreneurs: New Evidence from an Experimentally-Validated Survey," IZA Discussion Papers 2168, Institute for the Study of Labor (IZA).
  6. J. William Petty & William D. Bygrave, 1993. "What Does Finance Have to Say to the Entrepreneur?," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 2(2), pages 125-137 , Spring.
  7. Martin Browning & Thomas F. Crossley, 2000. "The Life Cycle Model of Consumption and Saving," Social and Economic Dimensions of an Aging Population Research Papers 28, McMaster University.
  8. Olson, Patricia D. & Zuiker, Virginia S. & Danes, Sharon M. & Stafford, Kathryn & Heck, Ramona K. Z. & Duncan, Karen A., 2003. "The impact of the family and the business on family business sustainability," Journal of Business Venturing, Elsevier, vol. 18(5), pages 639-666, September.
  9. Marianne Bitler & Alicia M. Robb & John D. Wolken, 2001. "Financial services used by small businesses: evidence from the 1998 survey of small business finances," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Apr, pages 183-205.
  10. Dietmar Harhoff & Timm Körting, 1998. "Lending Relationships in Germany: Empirical Results from Survey Data," CIG Working Papers FS IV 98-06, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  11. Bruce Bradbury, 1996. "Are the Low Income Self-employed Poor?," Discussion Papers 0073, University of New South Wales, Social Policy Research Centre.
  12. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June.
  13. Caliendo, Marco & Kritikos, Alexander S., 2007. "Start-Ups by the Unemployed: Characteristics, Survival and Direct Employment Effects," IZA Discussion Papers 3220, Institute for the Study of Labor (IZA).
  14. Yilmazer, Tansel & Schrank, Holly, 2006. "Financial intermingling in small family businesses," Journal of Business Venturing, Elsevier, vol. 21(5), pages 726-751, September.
  15. Naomi E. Feldman & Joel Slemrod, 2007. "Estimating tax noncompliance with evidence from unaudited tax returns," Economic Journal, Royal Economic Society, vol. 117(518), pages 327-352, 03.
  16. J. Manrique & K. Ojah, 2004. "Credits and non-interest rate determinants of loan demand: a Spanish case study," Applied Economics, Taylor & Francis Journals, vol. 36(8), pages 781-791.
  17. Winborg, Joakim & Landstrom, Hans, 2001. "Financial bootstrapping in small businesses: Examining small business managers' resource acquisition behaviors," Journal of Business Venturing, Elsevier, vol. 16(3), pages 235-254, May.
  18. Marshall, CBE, FBA, P.J., 2003. "Proceedings of the British Academy, Volume 120, Biographical Memoirs of Fellows, II," OUP Catalogue, Oxford University Press, number 9780197263020, July.
  19. Jonathan Crook, 2001. "The demand for household debt in the USA: evidence from the 1995 Survey of Consumer Finance," Applied Financial Economics, Taylor & Francis Journals, vol. 11(1), pages 83-91.
  20. Runkle, David E., 1991. "Liquidity constraints and the permanent-income hypothesis : Evidence from panel data," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 73-98, February.
  21. Marshall, CBE, FBA, P.J., 2003. "Proceedings of the British Academy, Volume 121, 2002 Lectures," OUP Catalogue, Oxford University Press, number 9780197263037, July.
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