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Do guarantee banks mitigate credit restrictions for SMEs?

Published Online:October 25, 2013pp 481-496https://doi.org/10.1504/IJESB.2013.057203

Abstract

German guarantee banks facilitate the access to bank finance of SMEs with no or not enough valuable collateral by underwriting a certain share of the overall risk of the loan amount. Based on conceptual studies about credit guarantee schemes a unique research approach has been developed to evaluate whether guarantee banks also help to overcome problems of asymmetric information and support the creation of lending relationships. Research findings to date have confirmed the positive impact of guarantee banks on SME lending. By facilitating the granting of loans to SMEs by commercial banks, guarantee banks indeed contribute to a reduction of information asymmetries which is often referred to as a main reason for credit constraints and help to intensify the relationship between banks and borrowers. The findings also provided some indications for a sustainable mitigation of credit constraints for SMEs seeking to borrow funds.

Keywords

credit guarantee schemes, guarantee banks, SME lending, information asymmetries, lending relationship, credit restrictions, small businesses, Germany

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