Financing of Small and Medium Enterprises (SMEs): Determinants of Bank Loan Application

Identifying factors that influence the tendency of firms to apply for bank loans

This paper aims to develop a small and medium enterprise (SME) bank loan model based on applicability. The model is based on a quantitative method coupled with a hypothetical-deductive testing approach which is applied on primary data relating to loan applications. Through logistic regression tests, the paper finds that business experience of a firm’s owner do not have a significant relation with the firm’s tendency to apply for a bank loan. It also suggests that the educational background of the firm’s owner, firm’s size, collaterals, and loans with interest were negatively related to a firm’s tendency to apply for bank loans. On the other hand, the firm’s business plans and start-up relationship with bankers are suggested to have a positive relation. The paper covers the following sections in detail:

  • Introduction to the Libyan economy and review of relevant literature;
  • Theory and hypothesis of the research;
  • Banks in SME financing and information asymmetry problems;
  • Human capital theory and SME financing;
  • Theory of the firm and SME financing;
  • Business plans and SME financing;
  • Financing of SMEs and loans with interest;
  • Discussion of logistic regression results and concluding remarks.

About this Publication

By Abdesamed, K.H. & Wahab, K.A.