Cowling, M., Wilson, N. orcid.org/0000-0001-5250-9894 and Liu, W. (2024) How does a small firm end up with a more expensive loan guarantee when a cheaper and safer one was on offer? The intriguing case of two UK Covid-19 guarantee schemes. Finance Research Letters, 67 (Part B). 105827. ISSN 1544-6123
Abstract
Most countries introduced loan guarantee schemes in the Covid-19 pandemic, and the UK offered two schemes. The BBL scheme had a cap of £50,000, a 100 % guarantee, and a fixed interest rate of 2.5 %. The CBILS scheme had a cap of £5 m, an 80 % guarantee and lenders set interest rates. We exploit a behavioural anomaly that led to 9,989 firms taking a CBILS loan for a cash amount below the BBL loan cap. Larger and older firms were more likely to be in this loan class and this is caused by lender sorting of firms by risk.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2024 The Author(s). Published by Elsevier Inc. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/). |
Keywords: | Loan guarantees; Covid-19; Small firms; Loan contracts; Loan default |
Dates: |
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Institution: | The University of Leeds |
Academic Units: | The University of Leeds > Faculty of Business (Leeds) > Accounting & Finance Division (LUBS) (Leeds) |
Funding Information: | Funder Grant number ESRC (Economic and Social Research Council) Not Known ESRC (Economic and Social Research Council) ES/W010259/1 |
Depositing User: | Symplectic Publications |
Date Deposited: | 12 Jul 2024 09:47 |
Last Modified: | 12 Aug 2024 14:23 |
Status: | Published |
Publisher: | Elsevier |
Identification Number: | 10.1016/j.frl.2024.105827 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:214646 |