Determining the credit risk factors in accessing debt financing for entrepreneurial activities

College

Ramon V. Del Rosario College of Business

Department/Unit

Financial Management Department

Document Type

Article

Source Title

DLSU Business and Economics Review

Volume

27

Issue

1

First Page

89

Last Page

96

Publication Date

1-1-2017

Abstract

Access to debt financing can be explained by the capability to pay of the borrower. The idea is that the better the capability to pay of a borrower, the wider his option to access debt financing and secure bank capital. As a derivative function of the individual and business characteristics of the borrower, the credit risk factors among others include housing type, education, share of income, total sales and total expenses, business and unemployment and economic skills. Using the Community Based Monitoring(CBMS) data, a three stage methodology has been implemented. Regression results show that having business capital is positively affected by the total sales and total expenses of the household entrepreneur and the presence of a pregnant woman in the household. Meanwhile, the probability of accessing bank loans is anchored on the collateral of the borrower, such that if the borrower has appliances, has business assets and shows capability to pay through rent payment and has a disabled individual in the household, his chances to source bank capital is better as compared to those without. Access to debt financing has also improved total sales performance, total family income and business assets of the entrepreneurs. As such, the paper calls for examining alternative sources of collateral and guarantees for micro and small medium enterprises (MSME)’s debt financing; empowering resource stewardship and risk management skills at the household level and championing a need for a credible source of information through a credit exchange bureau or comprehensive database center solely for MSME’s. © 2017 by De La Salle University.

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Disciplines

Finance and Financial Management

Keywords

Debt financing (Corporations); Small business—Finance

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