Short-term Loans Research Articles

Kabbage: an innovative source of short-term business loans

Synopsis New entrepreneurial businesses are one of the key drivers of innovation and economic development. However, one of their greatest obstacles is accessing capital, especially since they are often initially unprofitable and lack tangible assets in the first few years of operation. Since debt financing from banks can be difficult for them to obtain, their capacity for growth can be limited. This case introduces students to Kabbage, a company that reduced the barriers associated with start-up and microbusiness lending by using a fully automated, data-driven platform. Kabbage made instant decisions on whether these businesses should qualify for a line of credit by reviewing its clients’ electronic data, analyzed quickly and accurately using specific algorithms. Research methodology Given the applied nature of the case, the data were gleaned from a wide range of secondary sources, specifically popular business press which was verified for authenticity. Relevant courses and levels This case can be used in a variety of undergraduate courses. Some course examples include small business management, introduction to entrepreneurship or entrepreneurial finance.

The Longest Decade of the Empire’s Treasury: 1853-1856 Crimean War and Ottoman State Finances

This study aims to investigate the economic factors behind the crisis of the state finances, caused by the effects of the Crimean War of 1853-56. In the 19th century, modernization of the economic structure was realized through administrative and fiscal restructuring within the framework of Tanzimat period reforms. The Crimean war that took place in such a context brought great financial burdens to the empire's treasury and the pressure caused by increased expenditure necessitated new methods to financing the state budget deficit. In this context, in addition to methods that were previously used as government financing instruments like short-term loans from Galata Bankers and paper money creation, external debt was borrowed from European financial markets for the first time and domestic borrowing securities were issued. The Ottoman government has postponed the crisis of state finances for a while through new financing methods. But the economic consequences of these financing instruments have led to more severe fiscal problems for the state in the following years.

Review on the Role of rural Saving and Credit Cooperatives in Improving Rural Farmers‘ Socio-economic Activities in Ethiopia

Rural Saving and Credit Cooperatives (RuSACCOs) are the main financial solution of the people who have low income level.Rural saving and credit cooperatives are considered to have immense potential in financing short term loans for agricultural production technologies and undertake off-farm income generating activities in rural areas where both the state and the private sector have failed. Cooperatives and socio-economic development in Ethiopia has its own Economic significance, Employment creation, income generation and poverty reduction, Social protection, Cooperative representation. Cooperatives have a long history in Ethiopia. Traditional forms of collective action such as iqub found that a traditional form of rotating savings and credit association; work groups such as jige, wonfel, and debo, which help in mobilizing labor resource (Labour sharing); and idir, a traditional association which provides insurance for members during death and other accidents. . Rural saving and credit cooperatives have their own challenges that retard their financial solution to their members and the economical contribution to a country. In Ethiopia, the development of SACCOs is low due to the existence of different challenges. Some of the most important challenges include lack of capacity for providing competent managerial services, limited participation of members in decision making and controlling activities (because of limited capacity and skill), and lack of finance, basic infrastructure, and market information against the need for a better linkage of cooperative members. And recommending Government cooperative agency offices, Unions, and NGOs should provide sustainable technical training for cooperatives technical staffs on financial planning, financial management, and inventory handling issues are the possible recommendations. Saving and credit cooperatives play a crucial role in economic and social development for rural farmers in Ethiopia.

FINANCIAL LOANS OF PAWNSHOPS: EVALUATION AND DISCLOSURE IN ACCOUNTING

The article highlights the main results of the study on the assessment and presentation of the activity of pawnshops in accounting, taking into account special features. The factors that have a significant impact on the informativeness of the financial statements of pawnshops, prepared in accordance with the requirements of International Financial Reporting Standards (IFRS), were investigated. The special features of pawnshops activity in the part of granting of loans are considered, in particular: secured loan, the absence of a purpose for its sale as an asset, short-term credit granting. The following is presented: schematics of the process of crediting by a pawnshop, criteria and groups for the classification of financial assets of pawnshops. It was determined that the financial assets of pawnshops are formed from contractual cash flows consisting of payments for repayment of the principal amount of the asset and interest on its outstanding share. It is determined that: financial assets of the pawnshops can be evaluated at amortized cost or at fair value - accounts receivable that arise in the pawnshop in the lending process are financial assets that should be evaluated at amortized cost. The lack of recommendations and explanations for the pawnshops in calculating the effective interest rate has been identified. Recommended for calculating the effective interest rate for the pawnshops, using: basic provisions for calculating the effective interest rate for the bank's financial instruments; functions: IRR and XIRR of the Microsoft Excel software package. Situational examples are given for determining the impact on the financial result of the package of additional services in the process of applying the loan assessment at amortized cost using the effective interest rate method. The recommendation for the calculation of the effective interest rate, taking into account special features of the pawnshop's activity, is included in the part: short-term loans and one-time repayment of the principal amount of debt and interest at the end of the contract.

СТАН I ПРОБЛЕМИ РОЗВИТКУ БАНКІВСЬКОГО КРЕДИТУВАННЯ СІЛЬСЬКОГОСПОДАРСЬКИХ ПІДПРИЄМСТВ УКРАЇНИ

Досліджено теоретичні аспекти надання банківських кредитів підприємствам сільського господарства. Розкрито специфіку проблем, з якими стикаються учасники ринку банківського кредитування аграрної сфери в Україні. Акцентовано на тому, що в аграрному секторі традиційні перепони на шляху активування банківського кредитування доповнюються низькою якістю застави, високою ризикованістю агробізнесу, неефективністю кредитної політики, неврахуванням специфіки галузі тощо. Їх усунення передбачає симбіоз управлінських рішень багатьох суспільних інституцій. У цьому руслі важлива подальша імплементація ухвалених державою програмних документів з отримання часткової компенсації відсоткових ставок за залученими кредитами і поліпшення кредитного клімату. Досліджено динаміку обсягів і структури банківського кредитування сільсьгосппідприємств. Попри розвиток партнерських форм залучення позикових коштів, банківське кредитування перманентно слугує драйвером розвитку вітчизняних сільгосппідприємств. Свідченням цього є прискорене зростання обсягів кредитів, виданих таким підприємствам порівняно з кредитуванням підприємств інших секторів економіки. Доведено зміцнення позицій галузі сільського господарства на ринку кредитів та їхній позитивний вплив на виробництво сільгосппродукції. Протягом 2010—2016 рр. збільшення банківського кредитування на млрд грн призводило до збільшення виробництва продукції сільськогосподарськими підприємствами на 82 грн/га, усіма господарствами – на 57 грн/га. Економетричний аналіз виявив, що зміна ВВП України на 78,1 % залежить від зміни кредитування сільськогосподарських корпорацій. Якщо кредити сільгосппідприємствам терміном на п’ять років збільшаться на 1 млн грн, то можна очікувати збільшення обсягу ВВП у середньому на 0,164 млрд грн. Окреслено напрями поліпшення кредитування сільсьгосппідприємств, серед яких: застосування дієвого стратегічного напряму кредитної політики банківських установ – аутсорсингу; державна фінансова підтримка за рахунок компенсації кредитних ставок для аграріїв; розвиток кредитної кооперації.

Banks’ Governance and Innovation: Evidence from the Listed Firms in China

ABSTRACT The article investigates the relationship between banks, agency costs, and innovation ability of listed firms. The role of banks in affecting innovation is a very important topic especially in China where banks play more important roles than equity markets. We find that banks providing short-term funds to listed non-high-tech firms dampen their innovation ability significantly. However, the relationship between short-term loans and innovation ability in high-tech firms is insignificant. The effects of short-term loans on innovation ability are significantly different between high-tech and non-high-tech firms. Further examination shows that high-tech firms with more short-term bank loans have significantly less abnormal management expenses than non-high-tech firms in the next year. The reduced abnormal management expenses in the next year significantly enhance the innovation ability in the year after next.

Impact of Risk on Use of Trade Credit: Empirical Evidence from Non-financial Firms in Pakistan


 The study investigates the behavior of non-financial firms towards the use of trade credit where they have borrowing constraints in a developing economy. In spite of tremendous change in how businesses raise financing, many businesses still use trade credit as an alternative source of financing. The study is helpful in decision making for business schemes to occupy the risk factor in profit generation through the use of trade credit. Due to lack of funding’s for the businesses there is increase in risk the borrower become unable to run the business and therefore want to get finance or goods from any external source that fulfills the objective of the business as the suppliers. Banks require the collateral against the loan offered, as the risky customer has unable to provide any security to be pledged, trade credit serves the best means of short term loan for the customer. The buyer already in risky position tries to find out the short term means that are convenient and less time consuming for the businesses. Panel data has been used for working. The data on which the working is applied consisted of fifteen years i.e: from 2001-2015. The methodology used in the working is the Generalized Method of Moments (GMM). GMM is helpful for the problem raised because of the correlation amount the independent variables and the error term known as endogeneity problem as well as the heterogeneity of firms. J-statistics indicates that the instruments applied in the model are significant.

Problem gambling and psychological distress: a cross-national perspective on the mediating effect of consumer debt and debt problems among emerging adults

BackgroundSevere economic difficulties are common among younger generations who currently have an easy access to consumer credit and payday loans in many Western countries. These accessible yet expensive short-term loans may lead to more severe financial difficulties, including default and debt enforcement, both which are defined as debt problems within this study. This study hypothesized that consumer debt and debt problems mediate the relationship between problematic gambling and psychological distress. Excessive gambling can be funded with consumer debt, which in turn leads to the accumulation of financial stressors and, eventually, psychological distress.MethodsThree studies were conducted to examine the hypotheses. Study 1 used a demographically balanced sample of Finnish participants aged 18 to 25 years (n = 985, 50.76% female). Study 2 used a sample collected from Finnish discussion forums and social networking sites, with participants ranging from 18 to 29 years of age (n = 205, 54.63% female). Study 3 used a demographically balanced sample of American youths aged 18 to 25 years (n = 883, 50.17% female). Analyses were based on generalized structural equation models examining the role of problem gambling, consumer debt, and debt problems (i.e., default and debt enforcement) on psychological distress. Additional mediation analysis was run with treating both instant loans and debt problems as mediators.ResultsAll three studies showed that problem gambling was associated with consumer debt, which was further associated with debt problems. Both consumer debt (studies 1 and 2) and debt problems (study 3) were associated with psychological distress. Problem gambling was also directly associated with psychological distress in studies 1 and 3, but not in study 2. In Finland, consumer debt mediated the relationship between problem gambling and psychological distress (studies 1 and 2), while study 3 underlined the mediating role of debt problems in the USA, where consumer debt itself was not positively associated with psychological distress.ConclusionsThe results of the three studies indicate that problem gambling-related psychological distress is partly explained by consumer debt. Consumer credit and payday loans may provide resources for gamblers that enable them to keep up with the habit. This may eventually lead to debt problems and psychological distress. Cross-national differences exist, but in both Nordic and American models, similar mechanisms prevail. The results imply that limiting consumer debt among emerging adults could cushion the financial and psychological costs of problem gambling.

FEATURES OF LOAN SECURITY FOR THE REPRODUCTION OF FIXED ASSETS FOR AGRICULTURAL PURPOSES

The purpose of the article is to justify features of credit support for reproduction of basic agricultural products. It is shown that the modern financial system of Ukraine is in a state of prolonged decline, the output of which depends on the innovation activity of all subjects of the financial system, on the effective reproduction of fixed assets and the adequate financial and credit mechanism of its provision for agricultural enterprises. Methodology. There are several stages of reproduction of fixed assets of agricultural enterprises. At the first stage, there is a productive use of fixed assets. At this stage, they wear out and, accordingly, the amount of wear is calculated. It is the basis for the cancellation of the amount of depreciation deductions for costs after the completion of the production process. At the first stage of the turnover of fixed assets, the lost value of means of labour is lost. It is carried over to the cost of finished products. At the second stage, the transformation of the worn out of fixed assets, which were in a productive form, into cash, is taking place. On the third stage, in the process of production, there is an update of the consumption value of the fixed assets. This update is carried out by replacing the worn core production assets with new ones due to the accumulated depreciation of fixed assets. Results. Thus, it is established that the process of reproduction of fixed assets of agricultural enterprises is characterized by a number of features. The main ones are: a gradual write-off of cost to production costs; partial reproduction of the value in the finished product and its accumulation in cash; a long-time interval required for the renewal of fixed assets in a naturally real form; the need to attract significant one-time cash expenditures. Practical implications. Thus, the peculiarities of credit support for the reproduction of fixed assets of agricultural enterprises are: the objective necessity of its implementation due to the unprofitableness of the industry and the impossibility for a large part of agricultural enterprises, from their own sources, to provide a simple and extended reproduction of fixed assets; seasonal production; necessity of state support of the crediting process of reproduction of fixed assets. Value/originality. Thus, credit support for the reproduction of fixed assets of agricultural enterprises is the obligation of an agrarian enterprise to a credit institution, which must be paid out over a period of more than one year from the date of drawing up the balance sheet, as well as the prolongation of short-term loans used by the enterprise solely for the purpose of reproduction of fixed assets.

Effects of agricultural credit on wheat productivity of small farms in Sindh, Pakistan

PurposeThe purpose of this paper is to evaluate the impact of short-term loan (STL) vs long-term loan (LTL) on wheat productivity of small farms in Sindh, Pakistan.Design/methodology/approachThe econometric estimation is based on cross-sectional data collected in 2016 from 18 villages in three districts, i.e. Shikarpur, Sukkur and Shaheed Benazirabad, Sindh, Pakistan. The sample data set consist of 180 wheat farmers. The collected data were analyzed through different econometric techniques like Cobb–Douglas production function and Instrumental variables (two-stage least squares) approach.FindingsThis study reconfirmed that agricultural credit has a positive and highly significant effect on wheat productivity, while the short-term loan has a stronger effect on wheat productivity than the long-term loan. The reasons behind the phenomenon may be the significantly higher usage of agricultural inputs like seeds of improved variety and fertilizers which can be transformed into the wheat yield in the same year. However, the LTL users have significantly higher investments in land preparation, irrigation and plant protection, which may lead to higher wheat production in the coming years.Research limitations/implicationsIn the present study, only those wheat farmers were considered who obtained agricultural loans from formal financial institutions like Zarai Taraqiati Bank Limited and Khushhali Bank. However, in the rural areas of Sindh, Pakistan, a considerable proportion of small-scale farmers take credit from informal financial channels. Therefore future researchers should consider the informal credits as well.Originality/valueThis is the first paper to examine the effects of agricultural credit on wheat productivity of small farms in Sindh, Pakistan. This paper will be an important addition to the emerging literature regarding effects of credit studies.

Payday-loan bans: evidence of indirect effects on supply

In November 2008, Ohio enacted the Short-Term Loan Law which imposed a 28% APR on payday loans, effectively banning the industry. Using licensing records from 2006 to 2010, I examine if there are changes in the supply side of the pawnbroker, precious-metals, small-loan, and second-mortgage lending industries during periods when the ban is effective. Seemingly unrelated regression results show the ban increases the average county-level operating small-loan, second-mortgage, and pawnbroker licensees per million by 156, 43, and 97%, respectively.

Research on the Relationship between CEO's Overconfidence and Corporate Investment Financing Behavior

At present, the classic corporate finance theory is challenged by various behavioral visions of corporate leaders in the actual decision-making of corporate finance. From the perspective of behavioral finance, this paper selects the data of A-share listed companies in China's Shanghai Stock Exchange and Shenzhen Stock Exchange in 2003-2016 to study the relationship between CEO's overconfidence and business operations. The study found that: Overconfidence CEOs will tend to increase the level of leverage, increase the number of loans, especially to increase the number of short-term loans; When the economic growth is faster, the listed company's CEO is more inclined to overconfidence; However, unlike the results of foreign studies, overconfident companies did not replace CEOs more frequently than non-overconfident companies, and did not increase the probability of bankruptcy. Finally, the CEO of a state-owned company does not appear to be more overconfident than the CEO of a private company.

Short-term lending: Payday loans as risk factors for anxiety, inflammation and poor health

While research now consistently links consumer financial debt with adverse emotional health outcomes, specific forms of debt and their impact on measures of physical health are underexplored. This gap in knowledge is significant because different forms of loans and debt may have different experiential qualities. In this paper, we focus on a type of unsecured debt - short-term/payday loan borrowing – that has risen dramatically in recent decades in the United States and is characterized by predatory, discriminatory, and poorly regulated lending practices. Using data from a study of debt and health among adults in Boston, MA (n=286), we test whether short-term borrowing is associated with a range of emotional and physical health indicators. We find that short-term loans are associated with higher body mass index, waist circumference, C-reactive protein levels, and self-reported symptoms of physical health, sexual health, and anxiety, after controlling for several socio-demographic covariates. We discuss these findings within the contexts of regulatory shortcomings, psychosocial stress, and racial and economic credit disparities. We suggest that within the broader context of financial debt and health, short-term loans should be considered a specific risk to population health.

Spillover Effects of Foreign Direct Investment Inflows and Exchange Rates on the Banking Industry in China

The study examines the magnitude of economic spillover and the impact of foreign direct investment (FDI) inflows on the efficiency of the bank industry in China. This study employs unit root tests, cointegration tests and cointegrating regression analysis, including fully modified ordinary least squares (FMOLS), canonical cointegrating regression (CCR) and dynamic OLS (DOLS) to test the proposed hypotheses. The sample is restricted to the period of time in which monthly data is available and comparable among variables for the period from January 2002 to October 2013 (142 observations). All of the time series data was collected and retrieved from the People’s Bank of China, China Monthly Statistics from the National Bureau of Statistics of China, and International Financial Statistics database from International Monetary Fund. The results of the Johansen cointegration test suggest that there is a long-run equilibrium relationship between FDI inflows, foreign exchange rate and banks performance in China. The results of cointegrating regression analysis using FMOLS, CCR and DOLS suggest that M2 supply and FDI inflows are significant at the 0.01 level. The results confirm that FDI inflows in the banking sector are positively related to the increase of banks productivity and performance and short-term loans in China. However, the results suggest that Chinese Yuan currency exchange rate to U.S. dollar is not significant in the banking and financial industry of China.

Hidden “holes” in the capital of banks and the supply of credit to the real sector of economy

Our analysis documents that the existence of hidden “holes” in the capital of not yet failed banks - while creating intertemporal pressure on the actual level of capital - leads to changing of maturity of loans supplied rather than to contracting of their volume. Long-term loans decrease, whereas short-term loans rise - and, what is most remarkably, by approximately the same amounts. Standardly, the higher the maturity of loans the higher the credit risk and, thus, the more loan loss reserves (LLP) banks are forced to create, increasing the pressure on capital. Banks that already hide “holes” in the capital, but have not yet faced with license withdrawal, must possess strong incentives to shorten the maturity of supplied loans. On the one hand, it raises the turnovers of LLP and facilitates the flexibility of capital management; on the other hand, it allows increasing the speed of shifting of attracted deposits to loans to related parties in domestic or foreign jurisdictions. This enlarges the potential size of ex post revealed “hole” in the capital and, therefore, allows us to assume that not every loan might be viewed as a good for the economy: excessive short-term and insufficient long-term loans can produce the source for future losses.

GROWTH OPTION AND DEBT MATURITY WITH EQUITY DEFAULT SWAPS IN A REGIME-SWITCHING FRAMEWORK

We consider a firm with assets-in-place and a growth option. There is a funding gap for the expansion investment, which is covered by entering into an equity-for-guarantee swap or fee-for-guarantee swap. We explicitly derive all contingent claim prices with the pricing and timing of the growth option taking business cycle and debt maturity into account. For short-term loan, we produce an explanation why Chinese government suggests that guarantee fee rate should be approximately the fraction 50% of the interest rate of bank loans with the same maturity, but for long-term debt, we show this fraction is too small.

Obstacles and methods of financing for the development of local entrepreneurship in Iran

PurposeThe purpose of the current study is to investigate the public and private financing obstacles to medium- and small-scale entrepreneurs in rural areas in Iran.Design/methodology/approachDescriptive analytic research method is used for collecting field data among 5,770 owners of entrepreneurial businesses located in rural areas of Mashhad in 2015.FindingsThe results showed that there are numerous public and private obstacles in rural entrepreneurship financing in Iran, which are the main factors for short-term loan repayment in public sector, and in the private sector, they result in entrepreneurs’ lack of access to the source of financing. Moreover, there are a variety of financing methods for entrepreneurship in rural areas, among which personal resources and borrowings are the most important ones. Thus, lack of serious and persistent governmental support from local entrepreneurs causes many entrepreneurial failures at the early stages of entrepreneurial activity in villages of Iran.Originality/valueSo far, few studies have been conducted on the subject of the study; hence, the results of the current study may be helpful to the developing nations.

‘The whole art of war is reduced to money’: remittances, short-term credit and financial intermediation in Anglo-Dutch military finance, 1688–1713

The literature on the financial revolution and the rise of the English fiscal-military state frequently gives the impression that a singular set of reforms emanating from the Glorious Revolution of 1688 changed the entire landscape of English army finances, allowing a fundamental shift from patchwork solutions based on short-term credit and managed through a system of wholesale venality to a solid system of long-term funded loans raised on an impersonal market. This article focuses on the crucial role that merchant networks and the personal connections of financial intermediaries continued to play in international troop payments arranged by the English state through the Dutch Republic. Even when the English or Dutch treasuries could find the necessary money to pay and provision the troops in time, getting the money to the military commanders in the field or to their distant suppliers often depended on long and complex credit lines. Short-term loans acquired in making military expenditure – consisting of unpaid bills to suppliers, payments advanced by officials and officers, and temporary loans contracted by financial intermediaries – as well as the widespread reliance on commercial credit in the form of bills of exchange as a way to transfer funds effectively formed the life thread of army finance. The ability to finance the military in times of exploding costs and permanent emergencies without defaulting rested not only on the capacity to draw on financial resources at home, but also on the strength of commercial and financial networks abroad. In doing so, closeness to the centres of emerging international financial capitalism seems to have been of greater importance than a specific set of institutional innovations.

Screening on Loan Terms: Evidence from Maturity Choice in Consumer Credit

We exploit a natural experiment in the largest online consumer lending platform to provide the first evidence that loan terms, in particular maturity choice, can be used to screen borrowers based on their private information. We compare two groups of observationally equivalent borrowers who took identical unsecured 36-month loans; for only one of the groups, a 60-month loan was also available. When a long-maturity option is available, fewer borrowers take the short-term loan, and those who do default less. Additional findings suggest borrowers self-select on private information about their future ability to repay.

Federal Income-Driven Repayment Plans and Short-Term Student Loan Outcomes

This brief uses administrative data provided on the Baccalaureate and Beyond and Beginning Postsecondary Students data sets to examine student loan repayment over time. Specifically, we provide descriptive details on what differentiates borrowers in income-driven repayment (IDR) plans and explore the relationship between these plans and short-term repayment outcomes. While IDR has many benefits, our analysis suggests there may also be negative consequences to increased participation in these plans.