The use and impacts of bank support on UK small and medium-sized enterprises

Abstract

This paper examines an under-investigated area in relationship banking, i.e. the use of bank advice/support and its impacts on the financial conditions of small and medium sized enterprises (SMEs). The findings indicate that the characteristics of businesses and entrepreneurs, amongst other factors, have determinant effects on the use of bank support by SMEs, when they make financial decisions. SMEs can significantly alleviate the severity of their financial problems by using bank support more fully, through developing long-term relationships with banks as primary network partners. It further recognises the value of advice from banks being a substitute for entrepreneurial human capital, especially when bankers use ‘private information’ to determine the nature and level of financial and non-financial assistance that they are prepared to supply to their clients.