Determinants of SME credit worthiness under Basel rules: the value of credit history information

• Main Authors: Francesco Dainelli, Francesco Giunta, Fabrizio Cipollini
• Format: Article
• Language: English
• Published: Associazione Economia civile 2013-03-01
• Series: PSL Quarterly Review
• Subjects: Basel accord; Small business financing; credit historical data; rating
• Online Access: http://ojs.uniroma1.it/index.php/PSLQuarterlyReview/article/view/10302/10219

The Basel III Accord has reportedly had an impact on SME financing. In this paper, we aim to highlight the determinants of SME credit worthiness. We use credit history in addition to financial ratios and “hybrid” indicators that have been built by mixing credit history with financial statement data. We develop a failure prediction logit model on 187 Italian SMEs. The use of short-term credit lines is the most important variable. Contrary to common understanding, capitalization levels do not affect ratings. Lastly, credit worthiness is sensitive to sale profitability.