One of the most important issues facing
entrepreneurial firms is their ability to access capital.
Because such firms are typically not yet profitable and
lack tangible assets, debt financing is usually not an
option. Consequently, entrepreneurs tend to rely on
three primary sources of outside equity financing:
venture capital funds, angel investors, and corporate
investors (Denis, 2004).
Stiglitz and Weiss (1981) point out that the
propensity for an enterprise to be subject to credit
rationing is not neutral with respect to firm size. Rather,
as a result of adverse selection in a market with
asymmetric information the likelihood of credit
rationing tends to systematically increase as firm size
decreases.
Petersen and Rajan (1992) observe that small and
young firms are most likely to face a kind of credit
rationing. Most potential lenders have little information
on the managerial capabilities or investment
opportunities of such firms and are unlikely to be able
to screen out poor credit risks or to have control over
a borrower’s investments.
Samitas and Kenourgios (2005) mentioned that
access to finance is the most important constraint in
the view of the entrepreneurs. The smaller the firm,
the more important the difficulty of financing new
entrepreneurial plans becomes. Generally speaking, for
most small businesses and some limited extended
medium sized enterprises, owned capital comes from
private and informal sources; whereas, debt financing
is provided by the banking sector. The percentage of
enterprises having a credit provided by a bank is called
in this paper the “rate of bankarisation”. The “rate of
bankarisation” suggests that highly innovative and
expanding firms seem to have better access to credit
than the average European SMEs. This concludes that
banks have more interest in providing finance to bigger
and more dynamic enterprises.
One of the most important issues facingentrepreneurial firms is their ability to access capital.Because such firms are typically not yet profitable andlack tangible assets, debt financing is usually not anoption. Consequently, entrepreneurs tend to rely onthree primary sources of outside equity financing:venture capital funds, angel investors, and corporateinvestors (Denis, 2004).Stiglitz and Weiss (1981) point out that thepropensity for an enterprise to be subject to creditrationing is not neutral with respect to firm size. Rather,as a result of adverse selection in a market withasymmetric information the likelihood of creditrationing tends to systematically increase as firm sizedecreases.Petersen and Rajan (1992) observe that small andyoung firms are most likely to face a kind of creditrationing. Most potential lenders have little informationon the managerial capabilities or investmentopportunities of such firms and are unlikely to be ableto screen out poor credit risks or to have control overa borrower’s investments.Samitas and Kenourgios (2005) mentioned thataccess to finance is the most important constraint inthe view of the entrepreneurs. The smaller the firm,the more important the difficulty of financing newentrepreneurial plans becomes. Generally speaking, formost small businesses and some limited extendedmedium sized enterprises, owned capital comes fromprivate and informal sources; whereas, debt financingis provided by the banking sector. The percentage ofenterprises having a credit provided by a bank is calledin this paper the “rate of bankarisation”. The “rate ofbankarisation” suggests that highly innovative andexpanding firms seem to have better access to creditthan the average European SMEs. This concludes thatbanks have more interest in providing finance to biggerand more dynamic enterprises.
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