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The Bank Financing of Small Firms in UK: Issues and Evidence

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  • Keasey, Kevin
  • Watson, Robert

Abstract

This paper focuses on the, often strained, contractual relationships between banks and small firms in the UK. In the UK both the adequacy of the supply of debt finance to small firms (the so-called finance gap) and the contractual conditions attaching to it have frequently been seen as a major constraint on the development of the small firm sector. In this regard, the main UK clearing banks have been identified as the main culprits and have frequently been criticized for being too 'risk-averse', particularly in relation to the financial needs of rapidly growing small firms. Our analysis of the theoretical and empirical literature suggests, however, that the perception of a finance gap and other contractual conflicts between banks and small firms can be more adequately explained in terms of the differences in the economic functions, relative risks, payoffs and, therefore, the economic interests of the suppliers of equity and debt finance. Copyright 1994 by Kluwer Academic Publishers

Suggested Citation

  • Keasey, Kevin & Watson, Robert, 1994. "The Bank Financing of Small Firms in UK: Issues and Evidence," Small Business Economics, Springer, vol. 6(5), pages 349-362, October.
    • Handle: RePEc:kap:sbusec:v:6:y:1994:i:5:p:349-62
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    Cited by:

    1. John K. Mbroh, 2012. "An Investigation of Small and Micro-Enterprise Owners‘ Perceptions Towards Financial Credit Offered by Commercial Banks in the Cape Coast Metropolitan Area of Ghana," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(1), pages 171-180, March.
    2. Camino Blasco, David & Cardone Riportella, Clara, 1998. "The assessment of credit guarantee schemes for SME's: valuation and cost," DEE - Working Papers. Business Economics. WB 6535, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    3. Ugwu-Oju M. Obiageri & Vincent A. Onodugo & Mbah, Paulinus Chigozie*, 2019. "Assessing the Effectiveness of Commercial Bank Loans as Sources of Funding/ Capital Formation for Small and Medium Enterprises (SMEs) in Southeast, Nigeria," Business, Management and Economics Research, Academic Research Publishing Group, vol. 5(4), pages 62-70, 04-2019.
    4. Agyenim Boateng & Muhammad D. Abdulrahman, 2013. "Micro Small-sized Enterprises and Bank Credit," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 12(2), pages 129-150, August.
    5. Waniak-Michalak Halina, 2017. "The role of loan and guarantee funds in filling the funding gap for Small and Medium-sized Enterprises," Financial Internet Quarterly (formerly e-Finanse), Sciendo, vol. 13(4), pages 127-135, December.
    6. Mark Freel & Sara Carter & Stephen Tagg & Colin Mason, 2012. "The latent demand for bank debt: characterizing “discouraged borrowers”," Small Business Economics, Springer, vol. 38(4), pages 399-418, May.

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