SME financing in Europe: Cross-country determinants of bank loan maturity

Abstract

This article examines the influence of cross-country differences on bank loan maturity for small and medium-sized enterprises (SMEs), using a sample of 3366 SMEs from 19 European countries. It analyses a country’s legal and institutional environment while controlling for banking structure, economic situation and firm-specific characteristics. The study finds that SMEs in countries that protect its creditors and enforce existing laws are more likely to obtain long-term bank debt. It also shows evidence that banks seem to rely more on the institutional environment when determining loan maturity for micro-firms than for medium-sized firms. Policymakers should take these findings into consideration when proposing policy changes that are likely to impact the legal or institutional environment. For example, policy changes that affect creditor protection may have a direct impact on SME lending, and thus have economic consequences.