Determinants of SME Finance: Evidence from Three Central European Countries

Open access


This paper explores the determinants of access to finance for small and medium enterprises (SMEs) in the context of three Central European countries: Czech Republic, Slovak Republic, and Hungary. The data set of the research is obtained from the BEEPS survey, which is conducted by the World Bank and the European Bank for Reconstruction and Development. This paper empirically analyses firms not only from the SMEs point of view, but also shows results for micro, small and medium enterprises separately. Additionally, we have analysed the determinants of access to finance for SMEs at each country level for an in-depth understanding of country-level variations in SME financing. The results indicate that micro firms and firms owned and operated by women are experiencing a shortage of credits from banks. On the other hand, we found a positive relationship between the pledge of collateral and access to finance. With respect to the medium firms, we found evidence that innovative firms have a larger amount of credit from banks. The empirical results also suggest that the loan size increases as the interest rates increase in particular for SMEs on the whole and for micro-firms, although the interest rate is in a negative relationship with the loan size in Czech Republic.

If the inline PDF is not rendering correctly, you can download the PDF file here.

  • ALESINA A.F. LOTTI F. MISTRULLI P.E. (2013). Do women pay more for credit: evidence from Italy? Journal of European Economic Association 11 46-66.

  • AYYAGARI M. BECK T. DEMIRGÜÇ-KUNT A. (2007). Small and medium enterprises across the globe. Small Business Economics 29 415–434.

  • BAREGHEH A. ROWLEY J. SAMBROOK S. (2009). Towards a multidisciplinary definition of innovation. Management Decision 47(8) 1323-1339.

  • BECK T. DEMIRGÜÇ-KUNT A. (2006). Small and medium-size enterprises: access to finance as a growth constraint. Journal of Banking and Finance 30 2931-2943.

  • BECK T. DEMIRGUC-KUNT A. MARTINEZ PEIRA M.S. (2011). Bank financing for SMEs: evidence across countries and bank ownership types. Journal of Financial Services Research 39 35-54.

  • BELÁS J. SOPKOVÁ G. (2016). Significant determinants of the competitive environment for SMEs in the context of financial and credit risks. Journal of International Studies 9(2) 139-149. doi: 10.14254/2071-8330.2016/9-2/10

  • BELLUCHI A. BORISOV A. ZAZZARO A. (2010). Does gender matter in bank-firm relationships? Evidence from small business lending. Journal of Banking and Finance 34 2968-2984.

  • BERGER A. ESPINOSA-VEGA M.A. FRAME W.S. MILLER N.H. (2011). Why do borrowers pledge collateral? New evidence on the role of asymmetric information. Journal of Financial Intermediation 20 55-70.

  • BERGER A.N. UDELL G.F. (2002). Small business credit availability and relationship lending: the importance of bank organisational structure. The Economic Journal 112(477) 32-53.

  • BESANKO D. THAKOR A. (1987). Collateral and rationing: sorting equilibria in monopolistic and competitive credit markets. International Economic Review 28 671-689.

  • BESTER H. (1987). The role of collateral in credit markets with imperfect information. European Economic Review 31 887-899.

  • BLAZY R. WEILL L. (2013). Why do banks ask for collateral in SME lending? Applied Financial Economics 23(13) 1109-1122.

  • BOLTON P. FREIXAS X. GAMBACORTA L. MISTRULLI P.E. (2013). Relationship and Transaction Lending in a Crisis. Bank of Italy Temi di Discussione No. 917.

  • BONINI S. DELL’ACQUA A. FUNGO M. KYSUCKY V. (2015) “Credit market concentration relationship lending and the cost of debt” International Review of Financial Analysis Vol. 45 pp. 172-179.

  • BRANCATI E. (2015). Innovation financing and the role of relationship lending for SMEs. Small Business Economics 44 449-473.

  • BRICK I.E. PALIA D. (2007). Evidence of jointness in the terms of relationship lending. Journal of Financial Intermediation 16 452-476.

  • CARTER S. ROSA P. (1998). The Financing of Male and Women-owned Businesses. Entrepreneurship and Regional Development 10 225–241.

  • CARTER D.A. MCNULTY J.E. VERBRUGGE J.A. (2004). Do small banks have an advantage in lending? An examination of risk-adjusted yields on business loans at large and small banks. Journal of Financial Services Research 25 233-252.

  • CENNI S. MONFERRA S. SALOTTI V. SANGIORGI M. TORLUCCIO G. (2015). Credit rationing and relationship lending. Does firm size matter. Journal of Banking and Finance 53 249-265.

  • CHAIBI H. FTITI Z. (2015). Credit risk determinants: evidence from a cross-country study. Research in International Business and Finance 33 1-16.

  • CHAKRABORTY A. HU C.X. (2006). Lending relationships in line-of-credit and nonline-of-credit loans: Evidence from collateral use in small business. Journal of Financial Intermediation 15 86-107.

  • CHAN Y. S. KANATAS G. (1985). Asymmetric valuations and the role of collateral in loan agreements. The Journal of Money Credit and Banking 17 84-95.

  • COLE R.A. (1998). The importance of relationships to the availability of credit. Journal of Banking and Finance 22 959-977.

  • COMEIG I. FERNANDAZE-BLANCO M.O. RAMIREZ F. (2015). Information acquisition in SME’s relationship lending and cost of loans. Journal of Business Research 68 1650-1652.

  • DIERKES M. ERNER C. LANGER T. NORDEN L. (2013). Business credit information sharing and default risk of private firms. Journal of Banking and Finance 37 2867-2878.

  • FARINHA L. FELIX S. (2015). Credit rationing for Portuguese SMEs. Finance Research Letters 14 167-177.

  • FERRI G. MURRO P. (2015). Do firm odd couples exacerbate credit rationing. Journal of Financial Intermediation 24 231-251.

  • FREEL M. (2007). Are small innovators credit rationed” Small Business Economics 28 23-35.

  • GARWE D. K. FATOKI O. (2012). The impact of gender on SME characteristics and access to debt finance in South Africa. Development Southern Africa 29(3) 448-461.

  • GODLEWSKI C.J. WEILL L. (2011). Does collateral help mitigate adverse selection? A cross-country analysis. Journal of Financial Services Research 40 49-78.

  • GOMPERS P. (1995). Optimal investment monitoring and the staging of venture capital. Journal of Finance 50 1461-1489.

  • HAINZ C. WEILL L. GODLEWSKI C.J. (2013). Bank competition and collateral: Theory and evidence. Journal of Financial Services Research 44 131-148.

  • HALL B. H. (2002). The financing of research and development. Oxford Review of Economic Policy 18 35-51.

  • HANEDAR E.Y. BROCCARDO E. BAZZANA F. (2014). Collateral requirements of SMEs: the evidence from less developed countries. Journal of Banking and Finance 38 106-121.

  • HERNANDAZ-CANOVAS G. MARTINEZ-SOLANO P. (2010). Relationship lending and SME financing in the continental European bank-based system. Small Business Economics 34 465-482.

  • IRWIN D. SCOTT J.M. (2010). Barriers faced by SMEs in raising bank finance” International Journal of Entrepreneurial Behaviour and Research 16(9) 245-259.

  • KNYAZEVA A. KNYAZEVA D. (2012). Does being your bank’s neighbor matter? Journal of Banking and Finance 36 1194-1209.

  • KIRSCHEMANN L. (2016). Credit rationing in small firm bank relationships. Journal of financial Intermediation 26 68-99.

  • LEE N. SAMEEN H. COWLING M. (2015). Access to finance for innovative SMEs since the financial crisis. Research Policy 44 370-380.

  • LEON F. (2015). Does bank competition alleviate credit constraints in developing countries? Journal of Banking and Finance 57 130-142.

  • MENKHOFF L. NEUBERGER D. RUNGRUXSIRIVORN O. (2012). Collateral and its substitutes in emerging markets lending. Journal of Banking and Finance 36 817-834.

  • MIAN A. (2003). Foreign private domestic and government banks: New evidence from emerging markets. University of Chicago Mimeo.

  • MOHNEN P. ROLLER L.H. (2005). Complementarities in innovation policy. European Economic Review 49 1431-1450.

  • MURAVYEV A. TALAVERA O. SCHÄFER D. (2009). Entrepreneurs’ gender and financial constraints: Evidence from international data Journal of Comparative Economics 37 270–286.

  • MYERS S.C. MAJLUF N. (1984). Corporate financing and investment decisions when firms have information investors do not have” Journal of Financial Economics. 13 187-221.

  • NEUBERGER D. RATHKE-DOPPNER S. (2015). The role of demographics in small business loan pricing. Small Business Economics 44 411-424.

  • NEUBERGER D. RATHKE S. AND SCHACHT C. (2006). The number of bank relationship of SMEs: a disaggregated analysis of changes in the Swiss loan market. Economic Notes 35(3) 319-353.

  • ORTIZ-MOLINA H. PENAS M.F. (2008). Lending to small businesses: the role of loan maturity in addressing information problems. Small Business Economics 30 361-383.

  • PEDERZOLI C. THOMA G. AND TORRICELLI C. (2013). Modelling credit risk for innovative SMEs: the role of innovative measure. Journal of Financial Services Research 44 111-129.

  • PETERSEN M.A. RAJAN R.G. (2002). Does distance still matter? The information revolution in small business lending. The Journal of Finance 57 2533-2570. 2533-2570.

  • PETERSEN M.A. RAJAN R.G. (1995). The effect of competition on lending relationship. The Quarterly Journal of Economics 110(2) 407-443.

  • RAHMAN M.T. KHAN H.T.A. (2013). The effectiveness of micro-credit program in Bangladesh. Local Economy 28(1) 85-98.

  • RAHMAN A. RAHMAN M.T. KLJUCNIKOV A. (2016a). Collateral and SME financing: an analysis across bank size and bank ownership types. Journal of International Studies 9(2) pp. 112-126.

  • RAHMAN A. RAHMAN M.T. KLJUCNIKOV A. (2016b). Bank size relationship lending and SME financing: Evidence from Bangladesh. Actual Problems of Economics 183 294-307.

  • SHUMWAY T. (2001). Forecasting bankruptcy more accurately: a simple hazard model. The Journal of Business 74(1) 101-124.

  • STEFANI M.L. VACCA V. (2015). Small firms credit access in the Euro area: Does gender matter. CESifo Economic Studies 61(1) 165-201.

  • STEIJVERS T. VOORDECKERS W. VANHOOF K. (2010). Collateral relationship lending and family firms. Small Business Economics 34 243-259.

  • STIGLITZ J.E. WEISS A. (1981). Credit rationing in markets with imperfect information. The American Economic Review 71 393-410.

  • UCHIDA H. UDELL G.F. YAMORI N. (2012). Loan officers and relationship lending to SMEs. Journal of Financial Intermediation 21 97-122.

  • WATSON J. BEWBY R. MAHUKA A. (2009). Gender and the SME finance gap. International Journal of Gender and Entrepreneurship 1(1) 42-56.

Journal information
Impact Factor

CiteScore 2018: 0.66

SCImago Journal Rank (SJR) 2018: 0.21
Source Normalized Impact per Paper (SNIP) 2018: 0.682

Cited By
All Time Past Year Past 30 Days
Abstract Views 0 0 0
Full Text Views 891 374 11
PDF Downloads 577 285 10