UK credit and discouragement during the GFC

Abstract

The availability of credit to entrepreneurs with good investment opportunities is an important facilitator of economic growth. Under normal eco- nomic conditions, most entrepreneurs who requested loans receive them. In a global financial crisis, popular opinion is that banks are severely restricting lending to smaller businesses. This assumes that low levels of investment are caused by supply-side restrictions in the credit market. Little is said about potential changes in the demand for credit and how it is influenced by entrepreneurs’ perceptions about supply-side restric- tions. One particularly interesting, and under-re- searched, group of small businesses is that who have potentially good investment opportunities, but are discouraged from applying for external funding as they fear rejection. In this study, we question whether these entrepreneurs were correct in their assumptions. We find that levels of discouragement are quite low in general at 2.7 % of the total smaller business popu- lation. Further analysis implies that 55.6 % of dis- couraged borrowers would have got loans had they applied

Working the crowd: Improvisational entrepreneurship and equity crowdfunding in nascent entrepreneurial ventures

“…Indeed, it is estimated that up to a third of discouraged borrowers would have been approved credit (Cole and Sokolyk, 2016). Further, it has been shown that younger firms led by experienced entrepreneurs display discouragement (Cowling et al, 2016).…”

The wisdom of the crowd in funding: information heterogeneity and social networks of crowdfunders

“…This shift severely affects innovative small firms due to their disproportionate reliance on soft information in the lending process (Brancati 2014;Cosci et al 2016). Furthermore, the willingness of venture capitalists to fund start-ups is often limited to certain sectors (Huyghebaert et al 2007) and there is evidence that the financial crisis has dampened their willingness to invest, particularly in follow-up rounds (Block and Sandner 2009;Cowling et al 2016;Migendt et al 2014). Structural financing constraints for small firms impede economic growth when firms downplay their growth strategy to match available funds (Beck and Demirguc-Kunt 2006;Binks and Ennew 1996;Chittenden et al 1996;Rostamkalaei and Freel 2015).…”

A diverse and resilient financial system for investments in the energy transition

“…Some of these tighter rules and regulations are particularly likely to adversely affect the flow of funds and intermediation to new ventures [34,35]. …”