Innovation and borrower discouragement in SMEs

Abstract In this paper, we investigate whether innovative small- and medium-sized enterprises (SMEs) are more likely to be discouraged from applying for external finance than non-innovators. These so-called borrowers credit worthy SMEs who choose not apply despite the fact that is needed. We find undertaking pure product joint process innovation have a significantly higher incidence of borrower discouragement non-innovative counterparts. Moreover, radical incremental innovators relative Innovative activity can increase myriad reasons including fear rejection, reluctance take on additional risk, negative perceptions funding application perceived economic conditions. Overall, our results suggest need targeted policy interventions in order alleviate within SMEs, as well closer alignment between SME policy.