IDEAS home Printed from https://ideas.repec.org/a/now/fntent/0300000076.html
   My bibliography  Save this article

Impact: Entrepreneurial Borrowing: Do Entrepreneurs Seek and Receive Enough Credit?

Author

Listed:
  • Fraser,Stuart

Abstract

This work reviews the literature on entrepreneurial borrowing. The dynamic concept of the “entrepreneurial credit journey†is developed to frame the discussion of supply and demand side issues affecting entrepreneurial borrowing. The entrepreneurial credit journey follows the entrepreneur from the development of credit needs, through application and lending decisions and, beyond, to the consequences of these earlier decisions for firm performance. The literature has traditionally focussed on the lending decision stage, including: problems of credit rationing which may arise due to asymmetric information; and lending technologies to reduce information issues. However, on the demand side, discouraged borrowers, who decide not to apply for fear of rejection, have received increasing attention. There is also greater attention to issues of entrepreneurial cognition (e.g., over-optimism, illusion of control) which may adversely affect borrowing decisions. In terms of the firm performance effects of credit access, the review highlights the widely used internal finance approach to testing financial constraints is unidentified because it is unable to disentangle financial from cognitive constraints. An alternative, more direct, external funding gaps test of underinvestment is therefore proposed. The policy literature is also reviewed which suggests that assistance in the form of loan guarantees has been both finance and economic additional (i.e., providing entrepreneurs with credit they cannot get elsewhere and helping to create jobs that would not otherwise have been created) especially following the Great Financial Crisis. A discussion of the literature relating to underrepresented groups in the entrepreneurial credit market highlights that female and ethnic minority entrepreneurs may receive less credit, and/or pay a higher rate on the credit they receive, than their male or white counterparts. This speaks to ongoing issues of gender stereotypes and ethnic discrimination in the credit market. The increasing role of peer-to-peer lending following the Great Financial Crisis, and its potential for ‘democratizing entrepreneurial finance’, is discussed. This literature highlights that, while peer-to-peer lending is helping to fill credit gaps following the Great Financial Crisis, there are issues relating to the performance of small business peer-to-peer loans and possible issues of ethnic discrimination. The review concludes with proposals for future research on entrepreneurial borrowing, including: collecting more data relating to entrepreneurial credit journeys; developing tests for the presence of information asymmetries and the nature of selection in entrepreneurial credit markets; testing relationships between stages of the entrepreneurial credit journey (e.g., to shed light on the causes of discouragement); developing tests which disentangle financial from cognitive constraints; and researching entrepreneurial and bank learning over recurrent entrepreneurial credit journeys.

Suggested Citation

  • Fraser,Stuart, 2019. "Impact: Entrepreneurial Borrowing: Do Entrepreneurs Seek and Receive Enough Credit?," Foundations and Trends(R) in Entrepreneurship, now publishers, vol. 15(5-6), pages 431–663-4, December.
  • Handle: RePEc:now:fntent:0300000076
    DOI: 10.1561/0300000076
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1561/0300000076
    Download Restriction: no

    File URL: https://libkey.io/10.1561/0300000076?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Ernst-Ludwig von Thadden, 1992. "The Commitment of Finance, Duplicated Monitoring and the Investment Horizon," CEPR Financial Markets Paper 0027, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 33 Great Sutton Street, London EC1V 0DX..
    2. Wallmeroth, Johannes & Wirtz, Peter & Groh, Alexander Peter, 2018. "Venture Capital, Angel Financing, and Crowdfunding of Entrepreneurial Ventures: A Literature Review," Foundations and Trends(R) in Entrepreneurship, now publishers, vol. 14(1), pages 1-129, February.
    3. Stephen D. Williamson, 1987. "Costly Monitoring, Loan Contracts, and Equilibrium Credit Rationing," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(1), pages 135-145.
    4. von Thadden, Ernst-Ludwig, 2004. "Asymmetric information, bank lending and implicit contracts: the winner's curse," Finance Research Letters, Elsevier, vol. 1(1), pages 11-23, March.
    5. Johannes Wallmeroth & Alexander Groh & Peter Wirtz, 2018. "Venture Capital, Angel Financing, and Crowdfunding of Entrepreneurial Ventures : A Literature Review," Post-Print hal-02312128, HAL.
    6. Zia, Bilal H., 2008. "Export incentives, financial constraints, and the (mis)allocation of credit: Micro-level evidence from subsidized export loans," Journal of Financial Economics, Elsevier, vol. 87(2), pages 498-527, February.
    7. Gregory F Udell, 2015. "SME Access to Intermediated Credit: What Do We Know and What Don't We Know?," RBA Annual Conference Volume (Discontinued), in: Angus Moore & John Simon (ed.),Small Business Conditions and Finance, Reserve Bank of Australia.
    8. John Wagster, 1999. "The Basle Accord of 1988 and the International Credit Crunch of 1989–1992," Journal of Financial Services Research, Springer;Western Finance Association, vol. 15(2), pages 123-143, March.
    9. Roy Thurik & Ingrid Verheul, 2000. "Start-up capital: Differences between male and female entrepreneurs," Scales Research Reports H199910, EIM Business and Policy Research.
    10. Uchida, Hirofumi & Udell, Gregory F. & Yamori, Nobuyoshi, 2012. "Loan officers and relationship lending to SMEs," Journal of Financial Intermediation, Elsevier, vol. 21(1), pages 97-122.
    11. Winker, Peter, 1996. "Causes and effects of financing constraints at the firm level: Some microeconometric evidence," Discussion Papers, Series II 292, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    12. Ting Zhang & Zoltan Acs, 2018. "Age and entrepreneurship: nuances from entrepreneur types and generation effects," Small Business Economics, Springer, vol. 51(4), pages 773-809, December.
    13. Wilson, Nick & Wright, Mike & Kacer, Marek, 2018. "The equity gap and knowledge-based firms," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 626-649.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Coakley, Jerry & Lazos, Aristogenis & Liñares-Zegarra, José M., 2022. "Seasoned equity crowdfunded offerings," Journal of Corporate Finance, Elsevier, vol. 77(C).
    2. Wenlian Gao & Feifei Zhu & Kai Chen, 2023. "The role of bank lenders in firm leverage adjustments," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 46(1), pages 63-97, February.
    3. Carletti, Elena & Cerasi, Vittoria & Daltung, Sonja, 2007. "Multiple-bank lending: Diversification and free-riding in monitoring," Journal of Financial Intermediation, Elsevier, vol. 16(3), pages 425-451, July.
    4. Tiago Botelho & Richard Harrison & Colin Mason, 2021. "Business angel exits: a theory of planned behaviour perspective," Small Business Economics, Springer, vol. 57(1), pages 583-602, June.
    5. Harrison, Richard T. & Bock, Adam J. & Gregson, Geoff, 2020. "Stairway to heaven? rethinking angel investment policy and practice," Journal of Business Venturing Insights, Elsevier, vol. 14(C).
    6. Agnieszka Szewczyk & Zbigniew Stempnakowski, 2021. "Social Energy as the Driving Force behind Crowdfunding—Analysis and Classification of Selected Attributes," Energies, MDPI, vol. 14(19), pages 1-32, September.
    7. Thorsten Beck & Hans Degryse & Ralph De Haas & Neeltje van Horen, 2014. "When arm’s length is too far: relationship banking over the business cycle," Working Papers 169, European Bank for Reconstruction and Development, Office of the Chief Economist.
    8. Maribel Guerrero & Francisco Liñán & F. Rafael Cáceres-Carrasco, 2021. "The influence of ecosystems on the entrepreneurship process: a comparison across developed and developing economies," Small Business Economics, Springer, vol. 57(4), pages 1733-1759, December.
    9. Gajewski, Krzysztof & Pawłowska, Małgorzata & Rogowski, Wojciech, 2012. "Relacje firm z bankami w Polsce w świetle danych ze sprawozdawczości bankowej [Bank-firm relationships in Poland in the light of data from bank reporting]," MPRA Paper 42544, University Library of Munich, Germany, revised 29 Oct 2012.
    10. Paul P. Momtaz, 2021. "Initial coin offerings, asymmetric information, and loyal CEOs," Small Business Economics, Springer, vol. 57(2), pages 975-997, August.
    11. Degryse, Hans & De Haas, Ralph & Beck, Thorsten & van Horen, Neeltje, 2014. "When Arm?s Length Is Too Far. Relationship Banking over the Business Cycle," CEPR Discussion Papers 10050, C.E.P.R. Discussion Papers.
    12. Eric Tassel, 2022. "Relationship Lending and Liquidation Under Imperfect Information," Journal of Financial Services Research, Springer;Western Finance Association, vol. 61(1), pages 151-165, February.
    13. Khaoula Behi & Nivedita Agarwal & Alexander Brem, 2020. "An Analysis of a Crowdfunding System in North Africa Based on the Actor-Network Theory," International Journal of Global Business and Competitiveness, Springer, vol. 15(1), pages 23-34, June.
    14. Guillaume Andrieu & Benjamin Le pendeven & Gaël Leboeuf, 2021. "Equity Crowdfunding Success for Female Entrepreneurs: French Evidence," Economics Bulletin, AccessEcon, vol. 41(2), pages 417-431.
    15. Aurélien Petit & Peter Wirtz, 2022. "Experts in the crowd and their influence on herding in reward-based crowdfunding of cultural projects," Small Business Economics, Springer, vol. 58(1), pages 419-449, January.
    16. Beck, Thorsten & Degryse, Hans & De Haas, Ralph & van Horen, Neeltje, 2018. "When arm's length is too far: Relationship banking over the credit cycle," Journal of Financial Economics, Elsevier, vol. 127(1), pages 174-196.
    17. Gurău, Călin & Dana, Leo-Paul, 2020. "Financing paths, firms’ governance and corporate entrepreneurship: Accessing and applying operant and operand resources in biotechnology firms," Technological Forecasting and Social Change, Elsevier, vol. 153(C).
    18. Rim Tlili, 2016. "Monitoring, Loan Rates and Threat of Enterprise Liquidation in a Bank Relationship," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 6(5), pages 1-2.
    19. Stefano Filomeni & Gregory F. Udell & Alberto Zazzaro, 2016. "Hardening Soft Information: How Far Has Technology Taken Us?," CSEF Working Papers 455, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    20. Cerqueiro, Geraldo & Degryse, Hans & Ongena, Steven, 2011. "Rules versus discretion in loan rate setting," Journal of Financial Intermediation, Elsevier, vol. 20(4), pages 503-529, October.

    More about this item

    Keywords

    Entrepreneurial borrowing; credit rationing; discouraged borrowers; financial constraints; firm performance; enterprise policy;
    All these keywords.

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • L53 - Industrial Organization - - Regulation and Industrial Policy - - - Enterprise Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:now:fntent:0300000076. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lucy Wiseman (email available below). General contact details of provider: http://www.nowpublishers.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.