Working Paper Series: Special Edition of 2016 to 2018 Interns

Beck & Cull (2014) conducted a study on SME finance in Africa using a probit model. Findings indicated that small and medium firms were 30.0 per cent and 13.0-14.0 per cent less likely to obtain a formal loan respectively as compared to larger firms. Evidence also suggests that older firms’ sole proprietorships and partnerships were less likely to have a formal loan. This is indicative that age and legal status do have an impact on the probability of a firm accessing financing. There is also evidence of relationship lending between banks and enterprises in Africa where banks relied mostly on soft information in the absence of credit markets. In addition, ownership structure had a negative impact on firms’ ability to secure financing. In formal credit markets, firms registered as sole proprietorship and partnerships progressed far less compared to those in developing countries. Using multiple regression analysis Wu & Wang (2014) found that age and entrepreneurs’ tenure were positively associated with the probability of accessing financing. In addition, evidence of cooperation and the length of relationship between enterprise and bank positively increased SMEs access to bank financing. Using an ordered probit model findings by Kira (2013) suggest that small and medium firms as well as infant and young firms were more likely to be financially constrained compared to larger and mature firms. Additionally, it was found that domestic private firms and sole proprietorships had greater obstacles when it came to accessing financing as compared to foreign owned and listed firms. Estimating a probit regression model Sannajust (2014) observed that for SMEs in Europe and the USA, small and young firms have a higher probability of being refused a bank loan. Another significant determinant of loan rejection was industry structure, as firms in industrial sectors were more likely to be affected than those in the services sector. Sun et al. (2013) conducted a recent study on the factors that influence SMEs access to bank loans using multiple regressions. The findings revealed that scale of operations and bank loans were significant and positively related. This implies that the larger the size of a business the higher their probability of accessing credit. In addition, tangible assets were found to be another determinant of bank loan availability. As businesses increases in size they acquire more assets and machinery, which makes them more stable. Liquidity was found to be a significant determinant in the ability of the firms to access bank loans. Finally, the authors observed that there was a negative correlation

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