Regional Determinants of Small Firm Loans Under the U.K. Loan Guarantee Scheme

Abstract

The Loan Guarantee Scheme was initiated in 1981 in order to alleviate a perceived constraint in the ability of small firms to secure bank finance due to a lack of collateral. This paper shows that a national small firms support scheme has, at the point of delivery, had quite different coverage across regions. Briefly, the initial evidence suggests that the Northern regions of England have been the major net beneficiaries of the scheme, primarily at the expense of Northern Ireland and Scotland. Further analysis identified house prices as the single most important determinant of loan size, acting via a collateral effect. On loan numbers and value, fixed regional effects were dominant particularly in the South East and North West.