SME’s Credit Demand and Availability in the Euro Area

Abstract

Small and Medium Size Enterprises (SMEs) have been known to face extensive financing barriers which hamper their ability to grow. This study builds on existing literature on the “SMEs credit reliance view” to investigate the determinants of Euro area SMEs credit conditions and how SMEs have survived in the face of these constraints. Based on a sample of 63,811 SME’s survey by the European Central Bank (ECB), this study explores problems experienced by SMEs in gaining access to finance. A firm specific analysis with respect to SME characteristics and how they relate to the types of constrictions and in particular different demographics (country, size, financial autonomy and industry) which influence SME access to finance are used to investigate the subject area. The study drew conclusions that, despite country variations in SME access to finance, European Union SME’s have gradually decreased their need for external credit. Furthermore, three major themes were revealed, that is; country variables have effect on external finance demand, negative perception on external outlook increases demand for external finance and lastly banks do not solely set interest rates based on firm operations.

Keywords: Credit; Financial crisis; Supply and demand; SME