Collateral Requirements for Sme Loans: Empirical Evidence From the Visegrad Countries

Abstract

Abstract. The purpose of this paper is to examine the determinants of collateral for small and medium enterprises (SMEs) in the context of Visegrad countries: Czech Republic, Slovak Republic, Hungary and Poland. The data set for this paper was obtained from the Business Environment and Enterprise Performance Survey (BEEPS), which was conducted by the World Bank and the European Bank for Reconstruction and Development (EBRD) from 2012-2014. A binary logistic regression model with different specifications was employed to examine the effect of independent variables on the incidence of collateral. The results show that risky borrowers need to pledge collateral and the reduction of asymmetric information can lower the incidence of collateral for SMEs. Moreover, we find that female borrowers are more likely to pledge collateral than male borrowers are. The results also suggest that loans with a longer maturity are more likely to be collateralized than short-term loans. We find evidence that bank-borrower proximity can alleviate the incidence of collateral whereas bank concentration may increase collateral requirements. Policy makers may consider these results to implement policies that can promote bank competition and can lower collateral requirements for female borrowers. The paper contributes to the ongoing debate on the determinants of collateral.

Determinants of perceived bank financing accessibility for SMEs: evidence from an emerging market

“…In the same vein, Cressy and Alofsson (1997) and Silva and Carreira (2010) argue that manufacturing firms encounter lower credit constraints because they have a large amount of physical assets that they can use as collateral. In a related study, Rahman et al (2017) provide evidence that manufacturing firms pledge lower collateral than firms that operate in other industries, and they argue that banks require lower collateral from manufacturing-industry firms because they exhibit greater information transparency. Beck et al (2006) demonstrate that credit rationing faced by manufacturing firms is higher than that faced by service-sector firms.…”

“…Because innovations involve a degree of risk, banks may be reluctant to provide financing to innovative firms. Rahman, Belas, Kliestik and Tyll (2017) argue that innovation-oriented businesses have lower information transparency. In a related study, Hall and Lerner (2010) and Carpenter and Petersen (2002) maintain that innovative firms have intangible assets that are firm-specific and associated with human capital, which cannot be collateralised.…”

Effects of Soft Loans and Credit Guarantees on Performance of Supported Firms: Evidence from the Czech Public Programme START

“…Accordingly, their support may lead to an increased economic growth and reduction of unemployment. When compared to the capital grants and to other non-repayable forms of entrepreneurship support, in the case of soft loans and credit guarantees, all of the resources that are allocated by the state do not have to necessarily imply a negative cash flow for the state, because not all supported individuals result in bankruptcy, e.g., [9,[35][36][37][38][39].…”

The Effect of Bank Competition on the Cost of Credit: Empirical Evidence from the Visegrad Countries

“…The Audit is a dummy variable that takes one if the business has an audited financial statement and zero otherwise. It is widely discussed in prior literature that when a firm has its financial statement audited by external auditors, it can help to minimize information asymmetry between firms and the creditors and thus can receive loans with lessercredit restrictions [34] [30] [39]. Therefore, we expect to find a negative relationship between the audit report of the firm and cost of credit.…”