Determinants of Small Business Loan Approval: Evidence from Japanese Survey after 1997 Financial Crisis


We examine the determinants of small business loan approval under the credit squeezes after 1997 financial crisis in Japan. Owualah (2002, Japan and the World Economy) demonstrates that advantage usually conferred by long-standing banking relationship and main bank ties upon firms to favored access to bank credits is no longer guaranteed. We find that the probability of loan approval is positively associated with employment size of small businesses, loan requests made to governmental financial institutions for small businesses, and for investment in fixed assets. We also find that the loan request in 1998 is negatively associated with the probability of loan approval. Furthermore, regarding small business-bank relationship, companies that have seriously considered switching banks in the past three years have lower loan approval rates.

JEL classification: G21

Key Words
Small business; Loan approval; Borrowing constraints; Financial crisis

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Marc Cowling