Why do SMEs not Apply for Loans? Bank Loan Application Behavior and Access to Finance in the Euro Area

Non-application behavior for bank loans among European SMEs is economically more prevalent than loan application rejections by banks. Therefore, it should not be treated as a residual state but disentangled by its different reasons. Using microdata from the Survey on the Access to Finance of Enterprises (2014–2025), we document how firms choose and switch between loan application, discouragement, reliance on internal funds, and other non-application reasons. We combine an expected-utility framework with empirical estimations through multinomial and standard logit models. The main novelty is our ability to simultaneously investigate different types of non-application for bank loans, which are driven by differing forces. Discouragement manifests as a belief-driven channel of non-application, loan costs and the supply side drive another, cost-driven channel of non-application. By disentangling driving forces of non-application for bank loans as core element of the analysis, our study provides new evidence on why SMEs choose not to apply for bank loans. We highlight that these decisions can reflect diverse and contradictory underlying conditions. Our results are important for understanding and addressing these differing driving forces of SMEs bank loan application behavior.