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
Date Written: 2011
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: Suggested Citation