Start-Up Financing, Owner Characteristics, and Survival
Posted: 7 Mar 2003
Abstract
We investigated the relation between the survival of new small businesses and their having a bank loan. This was done in the context of a model that included other loan sources, human capital variables, as well as company and industry descriptors. We found, that, over the sample, there is a negative correlation between having a bank loan and business survival. There was, on the other hand, a positive correlation between having a non-bank loan and survival. However, having a bank loan was a ceteris paribus positive predictor of the survival of start-up companies. Our findings enabled some inferences about the process of selection of loan sources by start-up business owners, and about the process of granting loans by banks. There was evidence of self-selection towards non-bank sources of funds by owners with high levels of observable human capital and wealth and weak evidence of adverse selection against banks.
Keywords: Bank loans, financing, start-up, small business, survival, human capital, adverse selection, forecast
JEL Classification: G21, M20
Suggested Citation: Suggested Citation