‘Relationship Banking and SMEs: A Theoretical Analysis’

Baas, Timo; Schrooten, Mechthild

doi:10.1007/s11187-006-0018-7

Cited by 162 publications

(127 citation statements)

References 25 publications

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“…The principal obstacle to an efficient debt market for small firms is information asymmetry between financial instiutions and SMEs. Detailed financing information on small firms is not publicly available, and as the market for this data is limited, it is costly to obtain (Baas and Schrooten, 2006). Lack of detailed financing data on SMEs is particularly acute for micro-enterprises (Lean and Tucker 2000), which comprise 92% of small firms in the UK.…”

Section: Literature Reviewmentioning

confidence: 99%

“…These lending techniques may be classified as 'soft' (relationship lending), or 'hard' (asset-based lending, financial statement lending, and small business credit scoring lending) (Baas and Schrooten 2006). The former technique becomes more widely used over time, as firms become established and develop a trading and credit history (Voordeckers and Steijvers, 2006).…”

Section: Literature Reviewmentioning

confidence: 99%

“…Moral hazard should also be reduced, as firm owners are more likely not to engage in risky behaviour to the detriment of the locally based principal and repay the loan. Furthermore, firm owners are also less likely to endanger the survival of the community owned bank for social and community reasons (Baas and Schrooten 2006;DWP 2011). The logic of communitybased lending is therefore compelling.…”

Section: A Role For Credit Unions?mentioning

confidence: 99%

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Can credit unions bridge the gap in lending to SMEs?

2015

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.Small firms continue to experience difficulty accessing adequate finance from formal external sources, notwithstanding many and varied institutional and policy initiatives introduced to address this seemingly perennial problem. Underpinning research indicates that information asymmetry is the principal reason for the finance gap, particularly for young firms. The aim of legislation introduced in the UK in 2012 is to utilise the credit union sector to increase the amount of new lending to SMEs. The rationale for this legislative change arises because credit unions typically operate within a defined geographic region, they can compile detailed local knowledge of small businesses and are therefore uniquely placed to minimise information asymmetries thereby reducing the funding gap for small firms. Despite this perceived advantage, credit unions have been reluctant to take advantage of this legislative and lending by credit unions to SMEs has been negligent to date. We investigate the reasons for this lack of engagement in SME lending by interviewing the chief executives of five credit unions in Scotland.Our findings reveal that the CEOs of the credit unions are reluctant to lend to SMEs at present, as they are uncomfortable with the level of risk associated with lending to a sector of which they have little experience or expertise. Furthermore, credit unions will need to offer attractive interest rates to compete with high street banks and an increasing number of microcredit providers. Policy makers need to better understand the structure and function of credit unions before assigning a greater role in SME lending. It is too early to say whether credit unions can play a significant role in SME lending, and our evidence suggests that structural issues must first be resolved before they become an established presence in the SME lending ecosystem.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Section: A Role For Credit Unions?mentioning

confidence: 99%

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Can credit unions bridge the gap in lending to SMEs?

2015

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“…Therefore, this enterprise (SMEs) is incapable of accessing the capital markets and heavily rely on the bank loans (Kirschenmann and Norden 2007). Another research demonstrates that the majority of SMEs entrepreneurs are not able to provide accounting information related to their business condition (Baas and Schrooten 2006). With adequate accounting practices, SMEs should be able to meet the requirements in the credit application where one of them is through generating financial statements (Warsono 2009).…”

Section: Introductionmentioning

confidence: 99%

“…In fact, information used in bank's decision to lend is information related to assets pledged as a guarantee (Asset Based Lending) (Baas and Schrooten 2006). SMEs which have more pledged assets as guarantee for loans will be more likely to get credit from banks.…”

Section: Introductionmentioning

confidence: 99%

Factors That Affect The Perception Of Small And Medium-Sized Businesses (Smes)’ Community On The Importance Of Financial Statements, The Amount Of Credit Received And Implementation Prospects

Hutadjulu¹

2016

KSS

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The research aims to determine the perception of those practicing SMEs and examine the effect of the quality of financial statements of SMEs on the amount of credit received using several indicators, such as education background, education level, size of the business, age, quality of financial statements, credit guarantee, credit amount received and term loans. Data is collected through a questionnaire distribution from 40 respondents who run their business in the city of Jayapura. The results show that the education background and the level of education do not influence the perception of SMEs' actors, but the size and age of business do. While the size, age, credit guarantees and credit terms affect the amount of credit received, the quality of financial reports does not. This is likely due to the fact that the financial statement of SMEs have not been sources of reliable and relevant information for the banks in their decision to provide credit for SMEs' business.

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Collateral and Credit Rationing: A Review of Recent Empirical Studies as a Guide for Future Research

Steijvers¹,

Voordeckers²

2011

Issues in Finance

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‘Relationship Banking and SMEs: A Theoretical Analysis’

Cited by 162 publications

References 25 publications

Can credit unions bridge the gap in lending to SMEs?

Can credit unions bridge the gap in lending to SMEs?

Factors That Affect The Perception Of Small And Medium-Sized Businesses (Smes)’ Community On The Importance Of Financial Statements, The Amount Of Credit Received And Implementation Prospects

Collateral and Credit Rationing: A Review of Recent Empirical Studies as a Guide for Future Research

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