Small Business Finance Research Articles

Bank Loans for Small Businesses in Times of COVID-19: Evidence from China

ABSTRACT Using representative loan-level data in China, this paper shows that bank loans for small businesses are more generous and flexible during the pandemic. In places more severely affected by the pandemic, loans for small businesses have lower costs, shorter maturities, larger amounts, are more likely to be unsecured loans. Small businesses are also more likely to extend the loan repayment, while the probability of defaulting shows no significant differences. Although the easy monetary policies implemented by central banks help small business financing, the government should pay attention to the potential NPL concerns in the post-pandemic periods.

Small Business And Entrepreneurship Financing System In Uzbekistan: Historical Analysis And Approaches

The article describes the specifics of the system of financing of small business and entrepreneurship in the recent history of Uzbekistan, the funds allocated for small business and entrepreneurship, the activities of commercial banks and the financial and banking system, some problems in the field. It also noted that since the early days of independence, a unique business environment has been created in the country to support the interests of entrepreneurs in the framework of development programs in this area, data on the role of financial mechanisms in the further development of small business and entrepreneurship in the country have been studied from a historical point of view. The article highlights the positive situation in the country's macro and microeconomic indicators, ie the active participation of banks in attracting local entrepreneurs and foreign investment, the existing problems in this area and the measures taken to address them. It analyzes the important factors and strategies of banks' participation in the development of business and entrepreneurship.

Investment Management in Early-Stage Entrepreneurship in Modern National Economies

The purpose of the paper is to evaluate indicators describing the participation of men and women in external financing of new small and medium businesses in different countries. As the initial information in our study, we used the data obtained from the implementation of the Global Entrepreneurship Monitoring Project. The study evaluated the indicators that characterize the participation of men and women in investments in emerging businesses, and the average values of the corresponding contributions. The scientific novelty and originality of our study are as follows: indicators on external investment in SMEs by men and women in different countries have been assessed; six indicators describing external investments for start-up entrepreneurs were modelled; males' participation in external financing of SMEs has shown to be higher in most countries than in women, and there is a gender gap in external funding; average values of deposits in investments for start-up entrepreneurs have been established; significant differences in the values of the six indicators under consideration by country are shown; countries with high and low values of each of the six indicators are represented. The results are of theoretical and practical importance for government bodies and entrepreneurs. The methodological approach to assessing external financing of new SMEs proposed in the article can be applied in further studies. The new knowledge gained is of interest and can be used in the educational process in universities. Further research may aim at detailing the structure of external financing recipients among entrepreneurs.

Small and Medium Business: Current Status and Sources of its Innovative Funding

The article analyzes the current development status of small and medium businesses in Russia. The authors reveal the dynamics of changes in the structure of investments in the Russian economy, where the share of small and medium businesses is especially noted. The direction of the trend and the expected trend of national entrepreneurial activity in the country are determined. The role of state support for small business development is assessed and the main directions in this area are determined. The main sources of financing for small and medium businesses are analyzed. The role of lending in this sector of the economy is noted; issues, risks, and prospects for the use of innovative methods of small business funding are identified. The analysis of the activity of participation of small businesses in the market of debt securities is carried out. In particular, the dynamics of the volume of placement of bonded loans of the small business sector is analyzed, the possibilities of entering the equity capital market through an IPO are being studied. Another innovative area of small and medium business funding is the venture capital financing, which is the most attractive for new startups. The authors revealed a fourfold increase in this type of financing over the past four years. In addition, the article also provides an assessment of alternative sources for small and medium business funding.

Positive Profits in Competitive Credit Markets With Adverse Selection

We provide theoretical foundations for positive lender profits in competitive credit markets with asymmetric information, where potential borrowers have scarce collateralizable assets. Strikingly, when some borrowers have negative net present value projects, an equilibrium always exists in which lenders make positive profits, despite their lack of ‘soft’ information and free entry of competitors. We then establish that greater access to collateral for borrowers reduces lender profits, and we relate our findings to the empirical evidence on micro-credit, payday lending, and, more broadly, retail and small business financing.

Small Business Finance in the United States during the1960s: Senator John J. Sparkman's “Small Business Capital Bank”

Small Business Finance in the United States during the1960s: Senator John J. Sparkman's “Small Business Capital Bank”

Demography of small and medium enterprises in Belarus

Business demography is an important information basis for making strategic decisions in the business area. This allows institutional bodies to optimally adjust their policies regarding the development of entrepreneurship nationally in such areas as regional development, employment, unemployment, education, sources of financing for small and medium-sized businesses, innovation policy, simplification of bureaucratic procedures, etc. Business demographic indicators characterise the dynamics of economic development through the adaptation of economic structures to changing market conditions. In addition, they assess the potential contribution that new start-ups can make to the important employment problem through job creation. At the same time, the organisation is primarily seen as a community of people, and capital optimisation is presented as an addition to the optimisation of people. In the study, in addition to analysing the classic indicators of business demography such as the activity population of enterprises, “birth”, “survival” (up to five years after birth), “death”, etc., a new indicator was proposed for implementation: the natural increase rate in the number of organisations in Belarus calculated both for the economy and for the types of economic activity. The study will help to develop recommendations for developing measures in the field of entrepreneurship development using a regression model that identifies the relationship between changes in business demographics and employment. A set of measures to support entrepreneurship are becoming an integral part of national economic policy, a powerful factor in increasing the level of “survival” of enterprises and increasing the share of “fast-growing” organisations. This contributes to the achievement of sustainable development goals. Stimulating development and support for small business, with the ability to quickly respond to changes in market conditions, will help provide the “coronavirus” economy with the necessary flexibility, an especially important factor in the context of COVID-19.

Peculiarities of business financing in the context of global trends in the use of FinTech innovation in the capital market

Methods. The theoretical and methodological basis of the study are scientific developments of domestic and foreign scientists related to determining the role of FinTech innovations in the development of the financial services market and the formation of FinTech tools for redistribution of financial resources between economic entities. The research used methods of theoretical and empirical research, in particular, abstraction and comparison in determining the features of the functioning of different types of online financing for SMEs; grouping method – in the study of regional features of the development of online financing models; methods of mathematical statistics – in determining development trends and forecasting the amount of alternative online financing by small and medium-sized businesses. Methods of graphical analysis allowed to visually reflect the results of the study. Results. The authors of the article analyze the current state and trends in the formation of fintech companies in Ukraine and financial support of business in the context of global trends in information technology. The place, role and features of using FinTech tools for redistribution of financial resources between economic entities based on the introduction of alternative models of business financing in Ukraine are identified. Novelty. A comparative description of the main types of online financing for small and medium-sized businesses is presented. The dynamics of changes in the volume of alternative online financing in the world and the specifics of the development of global and regional markets of alternative online financing are analyzed. The main determinants of influence on the development of online financing in the country are identified. Practical value. It is possible to apply the developed and submitted proposals for the further functioning and development of alternative business financing in Ukraine, taking into account global trends. The findings and results of the study will help intensify the implementation of online platforms and create conditions for peer financing of individuals and legal entities, promoting their development.

Банківське кредитування в стратегії фінансування мікро-, малого та середнього бізнесу

Банківське кредитування в стратегії фінансування мікро-, малого та середнього бізнесу

Does the Community Reinvestment Act Increase Small Business Lending in Lower Income Neighborhoods?

We estimate the impact of the Community Reinvestment Act (CRA) on small business lending in lower-income neighborhoods. Using 2004-2016 panel data on census tracts, we apply a combined regression discontinuity and fixed effect method. We find that the number of small business loans increases by about 3 to 4 percent and the total dollar amount of small business loans by about 6 to 10 percent in tracts becoming treated by the CRA. The results are robust along many dimensions and suggest that the CRA has a positive impact on access to finance for small businesses in lower income areas.

ПРОБЛЕМЫ РАЗВИТИЯ КРЕДИТОВАНИЯ МАЛОГО БИЗНЕСА В РОССИЙСКОЙ ФЕДЕРАЦИИ

The development of small business in the Russian Federation is a very important urgent problem, as it will make it possible to solve many important social programs in the country. However, in terms of the scale of development of this sector, Russia lags far behind the leading foreign countries. In the Russian Federation, since 2015, there has been a negative trend in the volume of lending to SMEs. Only in 2018, the volume of loans to SMEs stabilized, and at the beginning of 2019, an increase in the volume of the loan portfolio of SMEs by 1 % is already noted. In modern economic conditions, the main source of financial resources for small businesses, from the point of view of their availability and opportunities for obtaining, is lending. The article examines the development trends of lending to such an important segment of economic activity as small business. Supporting small businesses in the Russian Federation is one of the priority tasks of the country’s socio-economic development. In all regions of the country, a network of government agencies has been created that provide information support to existing and emerging entrepreneurs (Entrepreneurship Support Centers based on the My Business platform), many seminars and forums dedicated to the development of entrepreneurship are held. Within the framework of this interaction, entrepreneurs can receive free of charge not only consulting services, but also assistance in developing a business plan, creating a corporate identity, developing and modernizing websites, conducting marketing research, and drawing up statutory documents. The activities within the framework of state support for small businesses in accordance with the State Program are highlighted and the importance of effective implementation of these activities for the development of small business lending is analyzed. The problems of lending to small businesses in the Russian Federation, obstacles that arise both from banks when they either cannot offer attractive lending programs, or refuse borrowers to provide a loan, and from entrepreneurs who refuse such a source of financing for small businesses, are considered. like lending. Measures are proposed to create favorable conditions for lending to small businesses, which are focused on supporting specific borrowers and those that are focused on supporting commercial banks and the banking system as a whole. The strategic guidelines of a commercial bank for the development of small business lending have been determined.

New ways of financing of small businesses in the context of the pandemic crisis

New ways of financing of small businesses in the context of the pandemic crisis

Historical Peculiarities of Small Business Finance in the U. S. and the Problem of Long-Term Financing in the 1950s and 1960s

Historical Peculiarities of Small Business Finance in the U. S. and the Problem of Long-Term Financing in the 1950s and 1960s

Why are there Racial Disparities in the Small Business Loan Market

We investigate patterns of racial bias in small business loans denial rates in the U.S. across different credit risk scores. We motivate this inquiry with a simple and generalizable statistical discrimination model where banks observe noisy signals of creditworthiness and hold prior beliefs of repayment probability based on the applicant’s group. Our model predicts that differences in approval rating across groups are more pronounced at middle range values and disappear at very high and very low credit scores. Using data constructed from the 1998 Survey of Small Business Finances and the restricted access Kauffman Firm Survey we find disparities in loan approval ratings between Black and White entrepreneurs in intermediate risk categories but not for the best and worst categories.

Entrepreneurial Finance: Analyzing the Demand for the Personal Guarantee

This study contributes to the current body of entrepreneurial finance literature by analyzing multiple aspects of personal guarantees. We conducted a survey yielding 1,462 responses from owners or managers of incorporated small businesses geographically dispersed throughout the United States. Of these, 383 C or S corporations had loans in place during 2014. The survey focuses on personal guarantees used on five types of loans: lines of credit, mortgages, equipment loans, vehicle loans, and a loan type referred to as "other loans." We found the variation increase in personal guarantees for equipment loans, vehicle loans, and other types of loans during the 27 years (1987 – 2014) to be significant with a 95% confidence level, with a 5% margin of error. We found an underinvestment problem (Ang, Lin & Tyler, 1995) exists as 12.5% of owners of incorporated small businesses have decided not to undertake a positive net present value project because the lender required a personal guarantee to obtain a loan for the project. We found lenders denied 10.9% of these 383 corporations a loan resulting in credit rationing because of these corporations' inability to meet the lender's personal guarantee requirements. We found more than 15% of the 383 corporation owners refused the lender's requirement to provide a personal guarantee. Almost 42% of the 15% still received a loan from the same lender after refusing to provide a personal guarantee. We found that only 22.2% of female small-incorporated business owners received a loan after refusing to provide a personal guarantee from the same lender. Compared to 51.4% of the male small incorporated business owners still received the loan after refusing to provide a personal guarantee. Overall, we found that only 37% of the 1,462 incorporated small business respondents had a loan in place during 2014 compared to 67% of incorporated businesses documented by the Federal Reserve Board's 1987 National Survey of Small Business Finances.

Shared Destinies? Small Banks and Small Business Consolidation

The industrial and banking sectors have each seen consolidation over the past fifteen years, with small institutions representing an ever-shrinking share. Existing literature argues that small banks' comparative advantages lie in small-business finance. We argue that some of the consolidation in the banking sector is a consequence of changes to the industrial organization of the real economy. We use a Bartik instrument and variation in exposure to industries with different patterns of small-business growth to show that the real-side demand for small-business finance is partially responsible for the relative decline in the deposits, income, and loan growth at small banks. We do not find that small-business growth impacts large banks nor do we find that large-business growth affects small banks. The results are predominantly driven by the propensity of small banks to be acquired.

ІННОВАЦІЙНІ ІНСТРУМЕНТИ ФІНАНСУВАННЯ МАЛОГО ТА СЕРЕДНЬОГО БІЗНЕСУ У ГЛОБАЛЬНІЙ ЕКОНОМІЧНІЙ СИСТЕМІ

The article is devoted to the study of innovative tools for financing small and medium-sized businesses in the global economic system, as well as current trends in the development of alternative sources of credit for international business. The study examines the problems of attracting bank loans to small and medium enterprises, identifies features of using alternative sources of credit to finance the activities of small and medium enterprises in the world, describes groups of alternative methods of external financing of small.Based on the analysis, the features of the transition from traditional to innovative forms of small and medium business financing are identified, the conditions for regulating crowdfunding in the world are identified, the features of the development of alternative credit financing in Ukraine are highlighted. The advantages and disadvantages of crowdfunding as an innovative tool for financing the investment activities of the enterprise are summarized, as well as the prospects for its development in Ukraine are identified.The study substantiates that the current market situation and related uncertainties force the development and adaptation of new innovative instruments for financing small and medium-sized businesses, including the capital market; use hybrid tools, including venture financing and business angel support. According to the results of the research, possible methods of promoting crowdfunding among the countries of the world and scientific and practical recommendations for the introduction of innovative tools for financing the activities of small and medium enterprises in the international business system are proposed.

Small business investment: The importance of financing strategies and social networks

AbstractThis study examines the association between financing strategies and firm investments. Employing theory of financing constraints and literature on formal/informal financing of small businesses to investigate a set of 15,851 observations of Vietnamese small businesses in 11 years, we suggest a pecking order of financing strategies in terms of firm investments, in ascending order as follows: (a) firms using no external finance, (b) firms using informal finance only, (c) firms using both formal and informal finance and (d) firms using formal finance only. In addition, we incorporate the theory of social capital to explore the moderating effect of networking on the relationship between financing and investment. Empirical results show that networks may enhance the relationship between informal finance and firm investments but not formal finance.

Community Banks vs. Non-Community Banks: Where is the Advantage in Local Small Business Funding?

Recent literature questions the relative advantage of community banks vs. non-community banks in small business funding. Using the Federal Deposit Insurance Corporation’s definition of a community bank, the study re-examines the role of community banks in providing funding to small businesses using the Community Reinvestment Act (CRA) small business lending data over the period 2003 to 2016. The empirical results indicate that community banks are still providing 30 percent more small business funding than non-community banks, especially after the Great Recession. This role is even more important in those counties in non-metropolitan areas. In addition, the results indicate that in counties where community banks do not have offices, they provide 48 percent fewer loans compared to non-community banks in counties where they do not have offices, which suggests community banks still use physical offices to maintain their relationship lending advantage. Clearly, from a public policy standpoint, the results support the view that community banks are important because they continue to provide valuable services to small business firms throughout the country.

INNOVATION FOR GROWTH: EVIDENCE FROM CEE EUROZONE CANDIDATES

This paper analyzes the European innovation framework focusing on four Eurozone candidates: Romania, Poland, Hungary, and Czech Republic. In the last decades, almost two-thirds of Europe’s economic growth has been driven by innovation. This idea is supported by impressive scientific findings concerning the correlation between innovation and economic growth. We believe that better innovation performance stimulates economic convergence and in the long term, facilitates the candidates’ transition towards Euro currency adoption. The countries in the study demonstrate a low innovative performance pattern, as our SWOT analysis will show. First, the gross domestic expenditure on research and development levels are far below the Union average. Secondly, there is a lack of cooperation between the academic and business sector, leading to a decreasing number of skilled personnel in the innovation industries. Lastly, these countries are suffering from an incoherent strategy aimed at reducing the productivity gap between domestic and foreign-owned firms. In order for these CEE Eurozone candidates to improve their European Innovation Score and their competitiveness, we recommend increasing investments in R&D, infrastructure, education, healthcare, clean energy and shifting towards higher value-added activities. We are also suggesting supporting digital innovation hubs, the creation of new companies, and facilitating access to finance for small and medium-sized businesses.