ABSTRACT
Bank credit, mainly through term loans, is one of the primary sources of external financing for small business in the Greek economy which is characterised by a bank-based financial system. Bank credit is a key to helping small firms maintain cash flow, hire new employees, purchase new inventory or equipment, and grow their business. Unlike large firms, small businesses lack access to public institutional debt and equity capital markets, and the vicissitudes of small business profits make retained earnings a significantly less stable source of capital. In the context of current crisis, the access to bank loans for small- and medium-sized enterprises has deteriorated considerably due to lower availability of bank loans that can hamper the exit from the crisis of these firms and the national economy. In this chapter, the short presentation of bank-based versus market-based financial system is provided. Then the analysis of data on small-business lending collected by Greek banking regulators is presented. We also provide the results of research on the relationship between banks and small and medium enterprises trying to show that the problems of banks’ SME (small and medium enterprise) financing are a timeless problem. Finally, the new evidence on how the financial crisis affected bank lending to small- and medium-sized enterprises in Greece is analysed.
