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Ratio Working Paper No. 232: Bank Financing of Start-ups – Findings from a survey

PublikationWorking paper
Asymmetrisk information, Företagandets villkor, Michel Elmoznino Laufer, Per-Olof Bjuggren, Start-ups, Tillväxtfinansiering
Working Paper No. 232.
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Sammanfattning

In the paper we look at the bank lending routines of Swedish banks and their consequences for external financing of start-ups. Results from a questionnaire sent out to start-ups listed in the files of the Swedish interest organization “NyföretagarCentrum” were used. We looked at firms founded during the period 2010-2011, which can be considered family firms in terms of the ownership structure. The survey indicated that bank loans had to be backed up with personal assets used as collaterals and personal guarantees of repayment. Essentially, the entrepreneur personally takes all risk. The corporate form does not work. Risk-adverse persons with innovative business ideas will hesitate to realize their ideas. The consequences for economic growth and employment will be negative. Research questions posed in this study are:
• How do start-up firms finance their business?
• How much personal financial risk must an entrepreneur with a start-up business shoulder?
• How do they try to mitigate the financial risk through financial bootstrapping?
• What are the alternatives to bank loans?
Law and economics theories about how collaterals and safeguards can overcome the double trust problem between entrepreneurs and financiers will be used. Bank regulations play a decisive role in these cases.
The contribution of the paper is that it gives both a theoretical and empirical explanation to why start- ups have to be financed by the entrepreneur. There is a shortage of empirical studies that show this.

Bjuggren, P-O. & Elmoznino Laufer, M. (2014). Bank Financing of Start-ups – Findings from a survey. Ratio Working Paper No. 232.

Baserat på innehåll

Ratio Working Paper No. 255: Startups, Financing and Geography– Findings from a survey
Working paperPublikation
Bjuggren, P-O. & Elmoznino Laufer, M.
Publiceringsår

2015

Publicerat i

Ratio working Paper

Sammanfattning

This paper investigates the importance of bank loans for the financing of startups and how location matters for expansion plans and financing. We will show that there has not been sufficient attention paid to legal form when distinguishing between the external and internal financing of startups. The focus will be on the corporate form of business and the implications of this legal form for what can be considered external financing. In the analysis of how location matters, we will draw upon the literature about agglomeration and knowledge spillovers.

The two main questions posed are: How does the corporate form matter for what can be considered the external financing of startups, and how does location matter for expansion plans and financing? To provide empirical answers to these questions, both survey data and registry data have been used.

The survey data are from a questionnaire sent out to startups listed in the files of the Swedish Jobs and Society Foundation. We looked at corporations founded during the period 2009-2013 that family firms in terms of ownership structure. The survey indicated that bank loans are rare and had to be backed up with personal assets used as collateral and personal guarantees of repayment for the majority of the firms who had used bank loans. Essentially, the entrepreneur personally takes most of the business risk. Bank loans have, to a large extent, the character of internal financing.

Combining registry data with the qualitative data from the survey, we used regression analysis to further study differences due to location. The regression analysis showed that the degree of urbanization matters for plans for expansion. In the three most urbanized areas, the startup firms had plans to expand their business both at home and abroad. In the other urbanized areas, the focus was on expansion at home.

Ratio Working Paper No. 255: Startups, Financing and Geography– Findings from a survey
Working paperPublikation
Bjuggren, P-O. & Elmoznino Laufer, M.
Publiceringsår

2015

Publicerat i

Ratio Working Paper

Sammanfattning

This paper investigates the importance of bank loans for the financing of startups and how location matters for expansion plans and financing. We will show that there has not been sufficient attention paid to legal form when distinguishing between the external and internal financing of startups. The focus will be on the corporate form of business and the implications of this legal form for what can be considered external financing. In the analysis of how location matters, we will draw upon the literature about agglomeration and knowledge spillovers.

The two main questions posed are: How does the corporate form matter for what can be considered the external financing of startups, and how does location matter for expansion plans and financing? To provide empirical answers to these questions, both survey data and registry data have been used.

The survey data are from a questionnaire sent out to startups listed in the files of the Swedish Jobs and Society Foundation. We looked at corporations founded during the period 2009-2013 that family firms in terms of ownership structure. The survey indicated that bank loans are rare and had to be backed up with personal assets used as collateral and personal guarantees of repayment for the majority of the firms who had used bank loans. Essentially, the entrepreneur personally takes most of the business risk. Bank loans have, to a large extent, the character of internal financing.

Combining registry data with the qualitative data from the survey, we used regression analysis to further study differences due to location. The regression analysis showed that the degree of urbanization matters for plans for expansion. In the three most urbanized areas, the startup firms had plans to expand their business both at home and abroad. In the other urbanized areas, the focus was on expansion at home.

Ratio Working Paper No. 232: Bank Financing of Start-ups – Findings from a survey
Working paperPublikation
Bjuggren, P-O. & Elmoznino Laufer, M.
Publiceringsår

2014

Publicerat i

Ratio Working Paper

Sammanfattning

In the paper we look at the bank lending routines of Swedish banks and their consequences for external financing of start-ups. Results from a questionnaire sent out to start-ups listed in the files of the Swedish interest organization “NyföretagarCentrum” were used. We looked at firms founded during the period 2010-2011, which can be considered family firms in terms of the ownership structure. The survey indicated that bank loans had to be backed up with personal assets used as collaterals and personal guarantees of repayment. Essentially, the entrepreneur personally takes all risk. The corporate form does not work. Risk-adverse persons with innovative business ideas will hesitate to realize their ideas. The consequences for economic growth and employment will be negative. Research questions posed in this study are:
• How do start-up firms finance their business?
• How much personal financial risk must an entrepreneur with a start-up business shoulder?
• How do they try to mitigate the financial risk through financial bootstrapping?
• What are the alternatives to bank loans?
Law and economics theories about how collaterals and safeguards can overcome the double trust problem between entrepreneurs and financiers will be used. Bank regulations play a decisive role in these cases.
The contribution of the paper is that it gives both a theoretical and empirical explanation to why start- ups have to be financed by the entrepreneur. There is a shortage of empirical studies that show this.

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