SMEs and the credit crunch: Current financing difficulties, policy measures and a review of literature

Abstract

After a brief overview of current financing difficulties for SMEs and policy measures to support SME lending during the crisis,this article presents a literature review related to difficulties in SME’s access to finance during the crisis, against a background of a sharp decline in bank profitability and an erosion of bank capital that negatively affected lending. The articles reviewed are classified according to four main issues of interest:the impairment of the bank-credit channel and its economic effects;factors potentially attenuating the effect of a financial squeeze;the role of global banking in mitigating but also transmitting financial shocks; and,looking ahead,issues related to so-called “credit-less recoveries” that should be relevant in guiding policy makers in the current environment of financial deleveraging. All the results hold important implications for policy making given the bail-outs and the large injections ofliquidity by central banks during the crisis.