Title : COLLATERAL REQUIREMENTS FOR SME LOANS: EMPIRICAL EVIDENCE FROM LEBANON COUNTRY
Author(s) : Majida Jrad, Yamina Tadjeddine
Abstract : This paper examines the factors that affect the collateralizing of a loan specifically for SMEs in Lebanon that is a country with a small open emerging-market economy. Collateral should guarantee the bank loan but in practice it is adjusted according to other socio-economic criteria of companies. This is particularly true for SME's and even more so for emerging countries. We propose in this article to illustrate the signals mobilized by banks when providing collateralized loans. Data on these variables have been derived from the Lebanese Central Band and the World Bank. It contains observations for two samples – 532 firms for 2020 and 561 firms for 2014. Three sets of factors influence the level of collateral required: those related to firm characteristics (relevant variables: age, size, auditing financial statements, developing the qualification of workforce, export orientation, the sector of manufacturing, located in capital city, female manager, export orientation), to loan characteristics (no relevant variable), and to credit market specifics (interest rate). Regression estimates suggest the age and size of a firm contributed to more collateral required in 2019. Smaller collateral is required by firms with bigger size, auditing financial statements, developing the qualification of workforce, export orientation, belonging to the sector of manufacturing, located in capital city in 2013. Female manager, export orientation, and location in capital city contribute to smaller collateral required in 2019. Loan value does not seem to tighten collateral requirements. In opposite perspective, the increases in the interest rate entail stricter collateralizing the loans.
Key-words : Financing, SMEs, collateral, credit risk, regression analysis, Lebanon
JEL Classification : G32; O16; O53
