ZBB 2015, 84
Bank Lines of Credit for Small Business Clients: Cash Substitution and Funding Source
We investigate whether small business clients could use revocable credit lines, firstly, in their cash management and, secondly, as a funding source. Since the medium-size bank that provided our unique sample has the right to call these lines and charges considerably high rates for using them, we argue that these lines are particularly suitable for managing short-term liquidity needs. From our findings on how the line terms (line availability, line limit, and charged line rate) depend on a client’s liquidity-at-risk, the duration of its relationship with the bank, and its limit overdrafts, we nonetheless conclude that these lines, although they are revocable, fulfill both purposes.
Contents
- I. Introduction
- II. Derivation and Discussion of Hypotheses
- III. Data
- 1. Sample Construction
- 2. Line Terms
- 3. Independent Variables
- IV. The Availability of a Revocable Bank Line of Credit
- V. The Line Limit
- VI. The Levels and Changes of Line Rates
- VII. Further Robustness Tests
- VIII. Conclusions
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- *)Corresponding author, Professor of Integrated Financial Risk Management, Institute of Banking, Finance and Accounting (IBFR), Leuphana University, Scharnhorststr. 1, 21335 Lüneburg, Phone +49 4131 677 2147, E-mail: andrea.schertler@leuphana.de
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- **)Dipl.-Kfm., Finance Center Münster, University of Münster, Universitätsstr. 14 – 16, 48143 Münster
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- ***)Professor, Finance Center Münster, University of Münster, Universitätsstr. 14 – 16, 48143 Münster, E-mail: andreas.pfingsten@wiwi.uni-muenster.de
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