Skip to main content
SpringerLink
Log in

Bank Financing Constraints: The Effects of Start-Up Characteristics

  • Chapter
  • First Online:
New Challenges in Entrepreneurship and Finance

Abstract

The paper aims to shed new light on start-up financing and the existence of credit constraints that may negatively affect their activity. Although Venture Capital (VC) best suits the specific particularities of these projects, VC markets in Spain are actually underdeveloped, so that banks constitute by far the most important source of outside financing to start-ups. However, traditional collateral-based lending proves inadequate in start-up stages, lacking professionals and risk assessment mechanisms adapted to the nature of these ventures. From a sample of more than 800 start-ups in Spain under the Global Entrepreneurship Monitor (GEM) methodology, this work seeks to establish whether the tightening of bank lending is associated with aspects to do with certain firm-level characteristics or with the competitive profile of the founder team. The results obtained demonstrate that the entrepreneur’s income level represents the variable that most explains access to credit. In contrast, New Technology-Based Firms or companies devoted to exports are particularly subject to bank credit constraint.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 39.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Hardcover Book
USD 54.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

References

  • Akerlof GA (1970) The market of lemons. Qualitative, uncertainly and the market mechanism. Q J Econ 84(3):488–500

    Article  Google Scholar 

  • Backes-Gellner U, Werner A (2007) Entrepreneurial signalling via education. A success factor in innovative start-ups. Small Bus Econ 29(1–2):173–190

    Article  Google Scholar 

  • Bates T (1997) Financing small business creation: the case of Chinese and Korean immigrant entrepreneurs. J Bus Ventur 12(2):109–124

    Article  Google Scholar 

  • Beck TA, Demirguk-kunt A, Maksimovic V (2003) Bank competition, financing obstacles and access to credit, Policy research working paper, 2996. World Bank, Developement research Group, Finance, Washington, DC

    Book  Google Scholar 

  • Berger A, Udell G (1998) The economics of small-business finance. The roles of private equity and debt markets in the financial growth cycle. J Bank Finance 22(6–8):613–673

    Article  Google Scholar 

  • Bertoni F, Colombo MG, Grilli L (2011) Venture capital financing and the growth of high-tech start-ups. Disentangling treatment from selection effects. Res Policy 40(7):1028–1043

    Article  Google Scholar 

  • Blanchflower DG, Oswald AJ (1998) What makes an entrepreneur? J Labor Econ 16(1):26–60

    Article  Google Scholar 

  • Blumberg BF, Letterie WA (2008) Business starters and credit rationing. Small Bus Econ 30(2):187–200

    Article  Google Scholar 

  • Brush C, Gartner NM, Hart M (2001) From initial idea to unique advantage. The entrepreneurial challenge of constructing a resource base. Acad Manag Exec 15(1):64–80

    Article  Google Scholar 

  • Carpenter RE, Petersen BC (2002) Capital market imperfections, high-tech investment and new equity financing. Econ J 112(477):F54–F72

    Article  Google Scholar 

  • Cassar G (2004) The financing of business start-ups. J Bus Ventur 19(2):261–283

    Article  Google Scholar 

  • Chittenden F, Hall G, Hutchinson P (1996) Small firm growth, access to capital markets and financial structure. Review of issues and an empirical investigation. Small Bus Econ 8(1):59–67

    Article  Google Scholar 

  • Coleman S, Cohn R (2000) Small firm’s use of financial leverage. Evidence from the 1993 national survey of small business finances. J Bus Entrep 12(3):81–98

    Google Scholar 

  • Colombo MG, Grilli L (2006) Supporting high-tech start-ups: lessons from Italian technology policy. Int Entrep Manag J 2(2):189–209

    Article  Google Scholar 

  • Colombo MG, Grilli L (2007) Funding gaps? Access to bank loans by high-tech start-ups. Small Bus Econ 29(1–2):25–46

    Article  Google Scholar 

  • Colombo MG, Grilli L (2009) A capital partnership. How human capital and venture capital affect the growth of high-tech start-ups. Strat Change 18(7–8):231–239

    Article  Google Scholar 

  • Cosh AD, Cumming D, Hughes A (2009) Outside entrepreneurial capital. Econ J 119(540):1494–1533

    Article  Google Scholar 

  • Cressy R (1996) Are business start-ups debt-rationed? Econ J 106(438):1253–1270

    Article  Google Scholar 

  • Da Rin M, Nicodano G, Sembenelli A (2005) Public policy and the creation of active venture capital markets, vol 430, Working paper series. European Central Bank, Bruselas

    Google Scholar 

  • De Meza D, Webb DC (1987) Too much investment. A problem of asymmetric information. Q J Econ 102(2):281–292

    Article  Google Scholar 

  • Denis DJ (2004) Entrepreneurial finance. An overview of the issues and evidence. J Corp Finance 10(2):301–326

    Article  Google Scholar 

  • Egeln J, Licht G, Steil F (1997) Firm foundations and the role of financial constraints. Small Bus Econ 9(2):137–150

    Article  Google Scholar 

  • Evans DS, Jovanovic B (1989) An estimated model of entrepreneurship choice under liquidity constrains. J Polit Econ 97(4):808–828

    Article  Google Scholar 

  • Freel M (1999) The financing of small firm product innovation in UK. Technovation 19(12):707–719

    Article  Google Scholar 

  • Freel M (2007) Are small innovators credit rationing? Small Bus Econ 28(1):23–35

    Article  Google Scholar 

  • Gartner WB, Frid CJ, Alexander JC, Carter NM (2009) Financing the emerging firm. Comparisions between PSEDI and PSEDII. In: Reynolds PD, Curtin RT (eds) New firm creation in the United States. Initial explorations with the PSEDII data set, International studies in entrepreneurship. Springer, New York, pp 185–216

    Chapter  Google Scholar 

  • Giudici G, Paleari S (2000) The provision of finance to innovation. A survey conducted among Italian technology-based firms. Small Bus Econ 14(1):37–53

    Article  Google Scholar 

  • Gompers P, Lerner J (2001) The venture capital revolution. J Econ Perspect 15(2):145–168

    Article  Google Scholar 

  • Hogan T, Hutson E (2005) Capital structure in new technology-based firms. Evidence from the Irish software sector. Glob Finance J 15(3):305–360

    Article  Google Scholar 

  • Holtz-Eakin D, Joulfaian D, Rosen HS (1994) Sticking it out. Entrepreneurial survival and credit constraints. J Polit Econ 102(1):334–347

    Article  Google Scholar 

  • Kutsuna K, Nobuyuki H (2004) Small business owner-managers as latent informal investors in Japan. Evidence from a country with a bank-based financial system Venture Capital. Int J Entrep Finance 6(4):283–311

    Article  Google Scholar 

  • Lindh T, Ohlsson H (1996) Self-employment and windfall gains. Evidence from Swedish lottery. Econ J 106(439):1515–1526

    Article  Google Scholar 

  • Magri S (2009) The financing of small entrepreneurs in Italy. Ann Finance 5(3):397–419

    Article  Google Scholar 

  • Mahagaonkar P (2010) Money and ideas. Four studies on finance, innovation and the business life cycle. Springer Science + Business Media, London

    Google Scholar 

  • Michaelas N, Chittenden F, Poutziouris P (1999) Financial policy and capital structure choice in U.K. SMEs. Empirical evidence from company panel data. Small Bus Econ 9(2):125–135

    Google Scholar 

  • Minola T, Giorgino M (2008) Who’s going to provide the funding for high tech start-ups? A model for the analysis of determinants with a fuzzy approach. R&D Manag 38(3):335–351

    Article  Google Scholar 

  • Moen O (2002) The born globals. A new generation of small European exporters. Int Mark Rev 19(2):156–175

    Article  Google Scholar 

  • Myers SC (1984) The capital structure puzzle. J Finance 57(3):575–592

    Article  Google Scholar 

  • Nosfinger JR, Wang W (2011) Determinants of start-up firm external financing worldwide. J Bank Finance 35(9):2282–2294

    Article  Google Scholar 

  • Oakey RP (1984) Innovation and regional growth in small high technology firms. Evidence from Britain and USA. Reg Stud 18(3):237–251

    Article  Google Scholar 

  • Oakey RP (1995) High technology new firms: variable barriers to growth. Paul Chapman, London

    Google Scholar 

  • Parker SC, Van Praag M (2006) Schooling, capital constraints and entrepreneurial performance. J Bus Econ Stat 24(4):416–431

    Article  Google Scholar 

  • Praag CM (2003) Business survival and success of young small business owners. Small Bus Econ 21(1):1–17

    Article  Google Scholar 

  • Reynolds P, Bosma N, Autio E, Hunt E, De Bono N, Servais I, López-García P, Chin N (2005) Global entrepreneurship monitor. Data collection design and implementation 1998–2003. Small Bus Econ 24(3):205–231

    Article  Google Scholar 

  • Schultz C (2011) Financing stages of technology-based firms in Germany. Int J Entrep Innov Manag 14(2–3):206–221

    Google Scholar 

  • Stiglitz JE, Weiss A (1981) Credit rationing in markets with imperfect information. Am Econ Rev 71(3):393–410

    Google Scholar 

  • Ueda M (2004) Banks versus venture capital. Project evaluation, screening, and expropriation. J Finance 59(2):601–621

    Article  Google Scholar 

  • Werner A (2011) Do credit constraints matter more for college dropout entrepreneurs? Int J Entrep Innov Manag 14(2/3):190–205

    Google Scholar 

  • Westhead P, Storey DJ (1997) Financial constraints on the growth of high technology small firms in the United Kingdom. Appl Finan Econ 7:197–201

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Faculty of Economics and Business Management, University of the Basque Country (UPV/EHU), Lehendakari Aguirre St., no 83, 48015, Bilbao, Spain

    Jon Hoyos-Iruarrizaga, Ana Blanco-Mendialdua & María Saiz-Santos

Authors
  1. Jon Hoyos-Iruarrizaga
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Ana Blanco-Mendialdua
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. María Saiz-Santos
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Ana Blanco-Mendialdua .

Editor information

Editors and Affiliations

  1. Department of Business Administration, Universitat Politècnica de València, Valencia, Spain

    Marta Peris-Ortiz

  2. Ipag Paris, Paris, France

    Jean-Michel Sahut

Rights and permissions

Reprints and permissions

Copyright information

© 2015 Springer International Publishing Switzerland

About this chapter

Cite this chapter

Hoyos-Iruarrizaga, J., Blanco-Mendialdua, A., Saiz-Santos, M. (2015). Bank Financing Constraints: The Effects of Start-Up Characteristics. In: Peris-Ortiz, M., Sahut, JM. (eds) New Challenges in Entrepreneurship and Finance. Springer, Cham. https://doi.org/10.1007/978-3-319-08888-4_15

Download citation

Publish with us

Policies and ethics

Search

Navigation