Have unincorporated businesses in the UK been constrained in their ability to obtain bank lending?

Abstract

The extent to which bank lending policies - and in particular their requirement for firms to post collateral - have imposed constraints on the ability of unincorporated businesses to meet their demand for debt finance has been examined. It was found that for the period from 1982 through to the end of the data sample, variations in the level of bank lending to unincorporated businesses can be explained in terms of a more or less conventional demand function for bank finance - albeit one with a zero interest elasticity - though there is some evidence of the importance of collateral constraints in the shape of a significant positive effect from the growth in the real value of housing wealth. Prior to 1982 there was a sharp increase in the level of bank lending to unincorporated businesses which is much harder to interpret in these terms. Instead, this is seen as having been driven largely by changes in bank lending policies; in particular, by a drive to develop new markets in response to unfavourable conditi...