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The "Liability of Newness" and Small Firm Access to Debt Capital:  Is There a Link?

The "Liability of Newness" and Small Firm Access to Debt Capital: Is There a Link?

Literature pertaining to the “liability of newness” contends that newer firms face particular difficulties and a greater risk of failure. This article seeks to determine if “newness” is also a disadvantage in the acquisition of debt capital. Results indicate that newer firms were significantly less likely to have lines of credit and were also significantly more likely to have been turned down for their most recent loan. Even when we control for length of relationship with the primary financial services provider, personal guarantees, and collateral, younger firms were still more likely to be turned down for loans. Small firms are an essential part of the United States economy. According to the U.S. Small Business Administration (SBA), there were 22.9 million small firms, defined as firms... Show More
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