Frontpage News 2014 The same credit st...

The same credit standards across the country

1 April 2014

​A new analysis from the Danish Bankers Association shows that Danish SMEs size and placing on the map do not have any influence on the businesses opportunities to get a loan granted.

The Danish Bankers Associations has analysed a comprehensive data set from Statistics Denmark, which covers about one fourth of the country’s SMEs in private businesses.

Among other things, the survey asks about the businesses’ loan applications for banks and mortgage credit institutions in 2010, and is representative on regions. Therefore, the data set is very useful in the circulating debate on the willingness to lend in the rural areas, believes Niels Storm Stenbæk, Chief Economist in the Danish Bankers Association.
’’The crisis has been tough on many Danish small and medium-sized businesses, and it has increased the need for funding for many of those companies. At first, they need to restore the solidity with the supply of risk capital. At the same time, this will prepare them better for the meeting with the bank,’’ says Niels Storm Stenbæk.

Good indicators enhances the chances of getting loans

The analysis establishes a statistical model that is able to identify the factors that are of importance to the companies’ likelihood of getting debt financing in the bank.
"Our calculations show that it is especially corporate solidity and return on assets that increase the likelihood of getting a "Yes’’ in the bank," Niels Storm Stenbæk explains.
"The company’s size does not have a significant effect in our model, so larger SMEs are in isolation not better off in the bank," Stenbæk continues.  

Location, Location, Location

The large amount of data makes it possible to examine whether the businesses’ geographical location affects the outcome of loan applications.
"When we adjust for the companies’ financial key figures, it is not possible to identify a significant geographic effect based on the regions. The main point of this analysis is that companies have the same credit terms, whether they are in Viborg or Vangede, or are large or small. Of course there are geographical differences, but they are not large and are mainly due to the financial situation,” Stenbæk explains.
However, he stresses that the analysis should not be interpreted as a denial of the fact that there are areas in the country where it is harder to operate than others. Thus said that there may be areas where companies increasingly are in financial trouble and therefore have problems getting a loan.

The entire analysis (in Danish) can be found as chapter 5 in the Report on risk capital.
Figure 1. Geographical distribution of the outcome of loan applications, 2010
Note: Based on a random sample of 2,265 SMEs, of which 570 were looking for funding from a bank or mortgage lender in 2010. The outcome is not controlled for other factors.
Source: The Danish Bankers Association on the basis of a survey study from Statistics Denmark.
Figure 2. Regional effects on the success rate of loan finance, 2010

Note: The figure shows the estimated geographic effects when the regions are compared to Copenhagen. In the model, financial key figures have been checked.
Source: The Danish Bankers Association’s report on risk capital.
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