Elsevier

Economic Analysis and Policy

Volume 75, September 2022, Pages 705-715
Economic Analysis and Policy

Full length article
Does bank complexity during the COVID-19 crisis alter the financing mechanism for small and medium-sized enterprises?

https://doi.org/10.1016/j.eap.2022.06.018Get rights and content

Abstract

Commercial banks are the largest creditor to small and medium-sized enterprises (SMEs) in the United States. This is regardless of the size of the business and includes new and fledgling ones. Despite this, it is almost impossible for banks to understand whether an SME has a good credit status due to increased information asymmetry. This could, therefore, prevent banks from lending money to an SME. Having seen their financing contract after the 2007–2009 financial crisis, American SMEs have lost even more market share for business loans. The Small Business Credit Survey by the Federal Reserve showed that “small employer companies” (firms with at least one non-owner employee, but fewer than 500) in the US had the most frequent financial challenge. Just 42% of these firms had their financing requirements fulfilled. Thus, the study findings confirmed the nexus between the variables. Financing shortages are detrimental to SMEs and have been shown to keep them from reaching their full potential to expand and provide economic benefits. This study also suggests different policy implications for the stakeholders.

Keywords

Bank complexity
Financing for SMEs
Financing system
Small and medium-sized enterprises
Commercial banks

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Project support: “Study on the financialization behavior of listed companies in industrial sector” (YC2019-B086), the 2019 Graduate Innovation Special Fund Project of Jiangxi Province, China.

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