Lending technologies and access to finance for SMEs in the hospitality industry

Abstract

Small and Medium-Sized Enterprises (SMEs) in the hospitality industry play a pivotal role in local economic development. However, lack of adequate access to financing may prevent a larger participation of hospitality SMEs. A possible reason for the limited availability of access to financing could be the presence of information asymmetries between borrowers and lenders that lead to credit rationing. Lending technologies, suitable for external sources of finance, are designed to reduce information asymmetries for lenders. Using Brazilian firm-level data, the purpose of this study was to examine the impact of lending technologies, such as fixed asset lending and financial statement lending, on access to financing for SMEs in the hospitality industry. While our results confirmed the role of lending technologies to mitigate information asymmetries, and increase a firm's likelihood of access to financing, we found a differing impact of these technologies on SMEs’ access to financing. Results suggest that fixed asset lending was the preferred lending technology. We also discuss implications of our findings on industry practice and policy discussion.