The Influence of Fixed Asset Investments and Bank Penetration on Access to Capital for SMEs in Latin America

  • David Wernick
  • Ricardo Correia


Small and medium-sized enterprises (SMEs) usually need external financing to expand their operational activities. However, most banks in developing countries, like the majority of Latin America, do not have sufficient penetration to meet this demand. The difficulties to obtain access to financing for such companies arise for a number of reasons, including the lack of collateral, informality, the challenge to cope with legal requirements, and the decreased availability of lines of credit from financial institutions. Small businesses that have fixed assets can find it easier to obtain loans because they can use these assets as collateral, with land and equipment being the most common collaterals accepted by banks. The purpose of this study is to understand the impact of fixed assets on the likelihood of SMEs to access bank loans. We analyze the role of several types of collateral, including land, buildings, vehicles, and machinery. We also investigate the impact of banking penetration on access to capital for SMEs that lack fixed assets investments. The results demonstrate that increased banking penetration is not associated to more access to financing for SMEs that have fixed assets, and we find that this occurs because SMEs usually avoid new sources of funding and prefer to rely on their credit history to obtain such loans.