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Small Business Access to Credit: Yesterday, Today and Tomorrow

Author

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  • Dennis, William J

    (NFIB Research Foundation)

Abstract

Small business access to credit has been turned upside down in the United States over the last 30 years. It has moved from a difficult problem for small business owners and managers as a group to a relatively modest one. The transformation is largely due to financial services deregulation, information technology, and finance innovation. Prominent among the latter is credit scoring. These developments raise policy issues that are relevant to all developed countries. Among them are: how does one measure and monitor small business credit access? What reassessments need to be made now that credit scoring has mitigated the market failure argument supporting government subsidized small business finance programs? What are the dimensions of a small business credit market? How will recent financial innovation withstand a severe recession? Within the bounds of safety and soundness, what can/should be done to promote de novo bank entry? And, what is the future of conventional small business loan-backed securitization in the light of the sub-prime debacle? Global forces have transformed the financial systems of all developed countries. , Yet, when considering those changes and their implications for small business access to credit, all countries start from a different point. The author’s comments focus on the changes American small business experienced accessing credit over the last 30 years, not because the U.S. experience is more instructive than any other nor because the American financial system is somehow more advanced, but simply because he knows it better and can use its context to develop implications for small business that appear applicable to most, if not all, of the world’s developed countries. The paper is organized as follows: the first section briefly addresses small business use and sources of debt finance. The second discusses small business owner access to credit and change in it. The third identifies three major factors that drove credit access’s decline as a major small business problem. The fourth recognizes characteristics of the American banking system that differ from other banking systems in developed countries, and how that may affect small business access to debt capital. The fifth presents six implications for small business and policymakers in the developed world and the paper concludes with brief comments.

Suggested Citation

  • Dennis, William J, 2008. "Small Business Access to Credit: Yesterday, Today and Tomorrow," Working Papers 2008:1, Swedish Entrepreneurship Forum.
  • Handle: RePEc:hhs:entfor:2008_001
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    File URL: http://entreprenorskapsforum.se/wp-content/uploads/2013/03/WP_01.pdf
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    References listed on IDEAS

    as
    1. Berger, Allen N. & Rosen, Richard J. & Udell, Gregory F., 2007. "Does market size structure affect competition? The case of small business lending," Journal of Banking & Finance, Elsevier, vol. 31(1), pages 11-33, January.
    2. Mathias Hoffmann & Iryna Shcherbakova-Stewen, 2011. "Consumption Risk Sharing over the Business Cycle: The Role of Small Firms' Access to Credit Markets," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1403-1416, November.
    3. Allen N. Berger & Lawrence G. Goldberg & Lawrence J. White, 2001. "The Effects of Dynamic Changes in Bank Competition on the Supply of Small Business Credit," Review of Finance, European Finance Association, vol. 5(1-2), pages 115-139.
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    Cited by:

    1. Srdjan Marinkovic & Marko Malovic, 2012. "Serbian Credit Market After the Turmoil," Book Chapters, in: João Sousa Andrade & Marta C. N. Simões & Ivan Stosic & Dejan Eric & Hasan Hanic (ed.), Managing Structural Changes - Trends and Requirements, edition 1, volume 1, chapter 14, pages 278-302, Institute of Economic Sciences.

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    More about this item

    Keywords

    credit; access;

    JEL classification:

    • A00 - General Economics and Teaching - - General - - - General

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