Which Business Starters Experience limited Access to Bank Funds?

In this paper we investigate which individuals face difficulties in raising funds from financial institutions when starting a business. We argue that banks are more likely to provide financial funds the more they are convinced that the loan is repaid timely and the business is likely to succeed. Thus, potential business founders can increase their chance to obtain a bank loan by committing themselves to repayment and their new business. Further, they can signal to the bank that they are good lenders. Our empirical analysis proceeds in two steps reflecting the supply and demand side of the market for business loans. First, we estimate the denial rate of banks and then we also look whether potential business founders differ in their likelihood to apply for credit. Our main findings are that home ownership, experience obtained in previous jobs, education, family composition, nationality, parental self-employment, multiple-ownership and income derived from previous occupation affect access to external financial resources. We argue that business plans and support obtained from an accountant are effective ways to signal credibility to a bank.