Terms of Lending for Small Business Lines of Credit: The Role of Loan Guarantees

The International Journal of Business and Finance Research, Vol. 5, No. 1, p. 91-102, 2011

12 Pages Posted: 3 Jul 2011

See all articles by Raymond L. Posey

Raymond L. Posey

Mount Union College

Alan K. Reichert

Cleveland State University

Date Written: 2011

Abstract

This study examines the role of loan guarantees in lines of credit granted to small businesses. Since there is evidence of simultaneity among lending terms, two-stage instrumental variable procedures are used to obtain consistent parameter estimates. The findings suggest the presence of a loan guarantee is associated with lower interest rates and smaller lines of credit and that loan guarantees and collateral are to some extent substitutes in that loans guarantees are a close substitute for collateral but collateral does not always serve as a close substitute for loan guarantees. Furthermore, firms with longer banking relationships and/or fewer banking relationships are less likely to have loan guarantees.

Keywords: term of lending, bank relationships, line of credit

JEL Classification: G2

Suggested Citation

Posey, Raymond L. and Reichert, Alan K., Terms of Lending for Small Business Lines of Credit: The Role of Loan Guarantees (2011). The International Journal of Business and Finance Research, Vol. 5, No. 1, p. 91-102, 2011. Available at SSRN: https://ssrn.com/abstract=1876092

Raymond L. Posey (Contact Author)

Mount Union College ( email )

1972 Clark Avenue
Alliance, OH 44601
United States

Alan K. Reichert

Cleveland State University ( email )

Cleveland, OH 44115
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
99
Abstract Views
500
rank
271,753
PlumX Metrics