By Victor U. Ekpu
This publication is a accomplished, but concise textual content that brings jointly all points of SME banking theories and empirical reports in a single textual content. The booklet comprises the newest coverage debates on funds production and credits rationing and the relative function of demand-side and supply-side components affecting SME financing. Readers will comprehend the borrower-specific, lender-specific and company setting drivers of financial institution finance for SMEs in addition to the determinants of mortgage agreement phrases, quite the danger top rate and collateral. Readers also will know how mortgage officials gather proprietary details on SMEs and observe quite a few lending concepts, corresponding to financial plan lending, courting lending and credits scoring to the mortgage underwriting technique. additionally, the publication additionally positive aspects contemporary developments at the upward push of other finance intermediaries akin to on-line peer-to-peer creditors and the aggressive implications for normal banks delivering loans to SMEs. Findings from this paintings will therefore be of specific curiosity to advertisement bankers, bank-dependent small enterprise debtors in addition to coverage makers, and researchers in primary banks, improvement banks, improvement enterprises and overseas monetary institutions.
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This booklet is a accomplished, but concise textual content that brings jointly all facets of SME banking theories and empirical reviews in a single textual content. The publication comprises the newest coverage debates on cash construction and credits rationing and the relative function of demand-side and supply-side elements affecting SME financing.
Additional info for Determinants of Bank Involvement with SMEs: A Survey of Demand-Side and Supply-Side Factors
Lenders sometimes require small business borrowers to make cash contribution of a certain percentage of the loan amount, so the borrowers can demonstrate that they will act in the lender’s best interest. e. 2 Owner Characteristics 35 aligned with that of the lender. Equity stake is important from the point of view of gearing and showing commitment by the owner (Fletcher 1995). Equity stake suggests that the track record of the owner(s) of the business is critical as an indication that they have the ability to utilize the loan for the purpose for which it was initially contracted.
1. 4 Tools to Help Solve Moral Hazard Problems As noted earlier, banks would like borrowers to behave in a “good” way, that is, in a way that assures a predictable income to the ﬁrm. Firms on the other hand may want to behave in a more risky way that would allow them to earn large proﬁts if they succeed but would leave them bankrupt otherwise. This is known as “moral hazard”. This is the risk that the borrower will engage in activities that are undesirable from the lenders’ point of view because they make it less likely that the loan will be paid back.
This may reflect why 41 % of SME employers do not understand the way banks assess business credit risk, and why they do not feel conﬁdent in raising ﬁnance. A greater number of SME employers perceive they are poor (38 %) at accessing ﬁnance compared to those reporting they are strong (25 %). However, most SMEs do not seek advice when applying for ﬁnance, with only 9 % of SMEs seeking advice when applying an overdraft and 20 % of SMEs seeking advice when applying for a loan (BDRC Continental 2011).