Credit Availability 1 SME Credit Availability Around the World: Evidence from the World Bank’s Enterprise Survey

In this study, we use data from the World Bank’s Enterprise Surveys of 80 countries over the period from 2006 – 2011 to model the credit-allocation process for SMEs into a sequence of three steps. Based upon these three steps, we classify small businesses into four groups based upon their credit needs. In a first step, we analyze which firms do, and do not, need credit. The “no-need ” firms have received scant attention in the literature even though they typically account for more than half of all small firms. We find that a “no-need ” firm is older and smaller than a firm that needs credit; is more likely to be organized as a corporation and to have an outside auditor; is more likely to be owned by a male and by a foreigner; and is more likely to be located in a small city and in a country with higher GDP per capita and GDP growth. In a second step, we analyze firms who need credit but fail to apply because they feared being turned down or thought that interest rates and collateral requirements were too unfavorable (discouraged firms). Like the “no-need ” group, discouraged borrowers have received little attention in the literature. Discouraged borrowers typically outnumber firms that apply for and are denied credit. Among firms that need credit, we find that a “discouraged ” firm is younger, smaller and growing slower than a firm that applied for credit; is much less likely to be organize