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Small Business Borrowing: Determinants and Consequences

Author

Listed:
  • Sonia Di Giannatale
  • Arnoldo López-Marmolejo

    (Centro de Investigación y Docencia Económicas (CIDE), Carretera México-Toluca 3655, Col. Lomas de Santa Fe, Mexico)

Abstract

Small businesses play a vital role in developing economies, yet they are often faced by credit constraints, a particularly pressing problem that can determine, to a significant degree, the challenges they face to their continued development and survival. In this article, we examine the literature on the borrowing decisions of entrepreneurs and business owners. In doing so, we pay particular attention to small firms in developing economies. We discuss the effects of a range of factors, such as the presence of information asymmetry in the financial system, the wealth and saving capacity of entrepreneurs and business owners, behavioral biases in entrepreneurial and business decisions, informality, and gender. We conclude our analysis with a look at the factors that affect a firm’s decision to start up or to close down in the face of a credit crunch.

Suggested Citation

  • Sonia Di Giannatale & Arnoldo López-Marmolejo, 2022. "Small Business Borrowing: Determinants and Consequences," Review of Development Finance Journal, Chartered Institute of Development Finance, vol. 12(2), pages 46-55.
    • Handle: RePEc:afj:journ3:v:12:y:2022:i:2:p:46-55
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    File URL: https://journals.co.za/doi/abs/10.10520/ejc-rdfin_v12_n2_a5
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    More about this item

    Keywords

    Small firms; borrowing; behavioral finance; gender gaps;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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