The hazards of delivering a public loan guarantee scheme: An analysis of borrower and lender characteristics

Abstract

Using data between 2009 and 2020, we provide a detailed description of the borrowers within the Enterprise Finance Guarantee (EFG) loan portfolio, analyse time to default and how it differs across lender types. For limited companies, we match additional financial and non-financial data from public and proprietary databases and profile the characteristics of EFG companies within the population of limited companies. Employing hazard models we find loans granted to unincorporated businesses by the medium-sized financial institutions are associated with a much lower hazard than those provided by smaller local lending institutions and not-for-profit agencies. Moreover, we find some evidence that loans to limited companies, issued by the big UK banking groups, have a significantly lower default than those from medium-sized financial institutions. Large banks screen out high-risk firms. We argue that smaller lenders are able to price the risks rejected by the larger banks, using a wider range of credit information.

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Item Type:	Article
Authors/Creators:	Cowling, M Wilson, N https://orcid.org/0000-0001-5250-9894 Nightingale, P Kacer, M https://orcid.org/0000-0002-3544-0327
Copyright, Publisher and Additional Information:	© The Author(s) 2023.. This is the peer reviewed version of the following article: Cowling, M., Wilson, N., Nightingale, P., & Kacer, M. (2023). The hazards of delivering a public loan guarantee scheme: An analysis of borrower and lender characteristics. International Small Business Journal, which has been published in final form at https://doi.org/10.1177/02662426231181455. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. This article may not be enhanced, enriched or otherwise transformed int//o a derivative work, without express permission from Wiley or by statutory rights under applicable legislation. Copyright notices must not be removed, obscured or modified. The article must be linked to Wiley’s version of record on Wiley Online Library and any embedding, framing or otherwise making available the article or pages thereof by third parties from platforms, services and websites other than Wiley Online Library must be prohibited.
Keywords:	loan guarantees, bank size, default risk, small business, credit scoring
Dates:	Published: March 2024 Published (online): 12 July 2023 Accepted: 15 May 2023
Institution:	The University of Leeds
Academic Units:	The University of Leeds > Faculty of Business (Leeds) > Accounting & Finance Division (LUBS) (Leeds)
Depositing User:	Symplectic Publications
Date Deposited:	26 May 2023 11:39
Last Modified:	11 Nov 2024 13:00
Status:	Published
Publisher:	SAGE
Identification Number:	10.1177/02662426231181455
Open Archives Initiative ID (OAI ID):	oai:eprints.whiterose.ac.uk:199231

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The hazards of delivering a public loan guarantee scheme: An analysis of borrower and lender characteristics

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