The value to banks of small business lending
By estimating the market premium placed on the small business loan portfolios of banking organizations, this study provides direct evidence on the value to banks arising from relationship lending. Using data from the small business loan survey contained in the June bank call reports, we find that small commercial and industrial loans do, in fact, add value for smaller banking organizations, both in absolute terms and relative to the value contributed by larger commercial and industrial loans. Interestingly, the value-enhancing effect emanates primarily from the smallest loans, those with original values of $100,000 or less. On the other hand, small commercial real estate loans, being transactional rather than relationship in nature, do not contribute additional value to banking organizations relative to larger commercial real estate loans.
AUTHORS: Peek, Joe; Holod, Dmytro
The financial structure of startup firms: the role of assets, information, and entrepreneur characteristics
Using the Kauffman Firm Survey, we examine how characteristics of a startup's assets, information about the startup, and entrepreneur attributes relate to financial structure at inception. Startups with more physical assets or those where the entrepreneurs have other similar businesses are more likely to use external debt in the financial structure since these assets have a high liquidation value. Startups with human capital embodied in the entrepreneur or intellectual property assets have a lower probability of using debt, consistent with the higher asset specificity and lower collateral value of these assets. Startups characterized as small, unincorporated, solo, first-time, or home-office-based are more likely to be financed by self, family and friends, and importantly through credit cards, as these have both highly specific assets and information opacity. More educated founders and non-African American founders are more likely to be financed by external sources. Controlling for other attributes of the startup, the financial structure of women-owned startups does not differ from that of other startups. Hi-tech startups' financial structure differs significantly from that of startups in other business sectors.
AUTHORS: Sanyal, Paroma; Mann, Catherine L.
The effect of falling home prices on small business borrowing
Small businesses continue to report problems in obtaining the financing they need. Because small business owners may rely heavily on the value of their homes to finance their businesses (through mortgages or home equity lines), the fall in housing prices might be one of the causes of their difficulty. We analyze information from a variety of sources and find that homes do constitute an important source of capital for small business owners and that the impact of the recent decline in housing prices is significant enough to be a real constraint on small business finances.
AUTHORS: Shane, Scott; Schweitzer, Mark E.
Why small business lending isn’t what it used to be
Since the Great Recession, bank lending to small businesses has fallen significantly, and policymakers have become concerned that these businesses are not getting the credit they need. Many reasons have been suggested for the decline. Our analysis shows that it has multiple sources, which means that trying to address any single factor may be ineffective or make matters worse. Any intervention should take all of the many causes of the decline in small business lending into consideration.
AUTHORS: Shane, Scott; Wiersch, Ann Marie
The role of relationships in small-business lending
In the presence of imperfect information, both large and small banks try to find alternative ways to identify creditworthy borrowers. Lending relationships are one way to go about this. Relationships between banks and small businesses tend to be much closer than those between banks and large businesses. This Commentary explains why lending relationships are valuable to both small businesses and banks, how they reduce information-lending problems, and what other solutions exist to help in the reduction.
AUTHORS: Jackson, William E.; Craig, Ben R.; Thomson, James B.
The demographics of decline in small-business lending
Outstanding loan volume at commercial banks declined 2.2 percent between June 2008 and June 2009.
AUTHORS: Corner, Gary S.; Bhaskar, Rajeev R.
Banking deregulation helps small business owners stabilize their income
Once banking markets were opened up to geographic diversity and competition, more banks were in a better position to lend money to small businesses-even in tough times.
AUTHORS: Sorensen, Bent E.; Demyanyk, Yuliya; Ostergaard, Charlotte
The power to move
Public/private partnership allows auto shop owner to expand (San Antonio)
The wisdom of crowdfunding
Microloans, also known as microfinancing, peer-to-peer lending, and crowdfunding, started out as a means for individuals, such as impoverished borrowers who lack collateral and underprivileged women in third world countries, to provide for themselves. The way microloan markets operate is quite straightforward. There are no banks. Interested individuals come together on a microloan platform and directly borrow and lend with each other.
AUTHORS: Zhang, Juanjuan
Microfinance in good times and bad: Yankee ingenuity keeps microfinance strong
With banks still facing challenges, alternative sources of credit are likely to play an increasingly important role in financing small businesses. The authors describe what ACCION USA has learned as its approach to microlending has evolved.
AUTHORS: Harman, Gina; Royles, Matthew