SMEs’ access to bank financing during the financial crises in Europe

This study explores the impact of the economy, banking market, and firm-specific factors on bank loan access for small and medium enterprises (SMEs) using data extracted from the Survey on the Access to Finance Enterprises (SAFE), covering the periods of the European sovereign debt crisis and the immediate post-crisis period from 28 European countries. We find that the rejection rates of bank credits spiked between 2009 and 2012 before declining in subsequent years. SMEs’ applications are more likely rejected when the banking environment is more concentrated but are less discouraged from applying due to rising impaired loans of banks. Credit availability is significantly influenced by the country’s legal framework for handling insolvency disputes and the growth of the credit information market, as we find that longer insolvency resolution times and increased credit information sharing result in higher probabilities of bank credit rejection. We also find that a feeble real economy is correlated with a more constrained credit supply and a shakier credit demand. More importantly, we build and subsequently empirically test hypotheses about factors determining credit demand and supply as well as the discouragement of SMEs in seeking bank loans, and the impact of past: rejections of bank credit, perception of deteriorations in banks’ loan availability, and bank loan application, on the deterioration of current credit supply perceptions, future applications, and future rejections, with significant lessons for policy making.