Business, Management and Accounting
5 years ago

Suppliers step in as last resort lenders for struggling small firms

RePEc: Research Papers in Economics
Trade Credit: Theories and Evidence
Mitchell A. Petersen, Raghuram G. Rajan

Paper Summary

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Firms sometimes borrow money from their suppliers when they can't get loans from banks. This study looked at small companies that might struggle to get traditional loans. They found that firms use trade credit more when they can't get bank loans. Suppliers lend money to firms that others won't because they have advantages in knowing about buyers, selling goods, and caring about the firm's success. Trade credit can also be used to charge different prices to different customers. Companies that can easily get bank loans offer more trade credit.