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.
Published Version
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