Can local finance add value to local small business? Evidence from a UK local loan and grant fund

Abstract

Access to finance is a key constraint on the creation, survival, and growth of SMEs, and this issue has prompted governments to directly intervene in financial markets, but has also led to the development of new forms of financial intermediation and new players in the market encouraged by a desire to increase competition in the market. Today these new forms of financing and new players in the market are in part complementary to more established sources, but also potential substitutes particularly for those businesses that are most constrained. In this paper we use new data from a survey of local small businesses to assess whether access to a local loan and grant fund has added value to supported businesses. Our findings suggest that there are tangible benefits associated with local finance provision that are likely to generate a positive local economic multiplier that extends beyond the funding period.