Lending to knowledge-based businesses in Newfoundland and Labrador

• Main Author: Gorman, Gary G.
• Other Authors: Stirling Management School, Department of Management and Organization
• Format: Doctoral or Postdoctoral Thesis
• Language: English
• Published: University of Stirling 2002
• Subjects: Small business Labrador (N.L.) Finance; Small business Newfoundland Finance; Small business Canada; Entrepreneurship Labrador (N.L.); Entrepreneurship Newfoundland; Enterpreneurship Cananda; Canada; Newfoundland
• Online Access: http://hdl.handle.net/1893/2639; http://dspace.stir.ac.uk/bitstream/1893/2639/1/Gorman%20%282002%29%20-%20Lending%20to%20Knowledge-Based%20Businesses%20in%20Newfoundland%20and%20Labrador.pdf

Knowledge-based businesses (KBBs) have the potential to make a significant contribution to peripheral regions with marginal economies, such as Newfoundland and Labrador. However, traditional lending approaches generally emphasize tangible collateral and historical performance. As a result, new knowledge-based firms, whose assets are primarily intangible, experience difficulty with access to financing. Financial institutions have responded by implementing specialized approaches to address the needs of KBBs. This exploratory study is designed to increase our understanding of institutional lending to KBBs, particularly at the start-up stage. Following a review of the literature a research framework was developed to explore the demand-side perspectives of entrepreneurs and the supply-side perspectives of lending institutions. A mail survey to entrepreneurs was employed to determine the roles played by chartered banks and government agencies in financing KBBs and to ascertain entrepreneurs' perceptions of financial institutions. Results indicate KBBs experience greater difficulty obtaining financing from chartered banks. Further, KBBs perceive banks to follow traditional risk assessment processes, emphasizing collateral. Findings suggest efforts by banks to cater to KBBs have been less than successful. Supply-side data were obtained from interviews with senior managers in banks and government agencies and from business plan reviews and follow-up interviews with account managers. Simultaneous verbal protocols were used to examine risk assessment processes in six banks and four government agencies. Hypothetical business proposals were presented to account mangers for initial review and subsequent due diligence. Data obtained at two stages of assessment were analyzed using consensus analysis, multidimensional scaling, hierarchical clustering, and standard multivariate techniques. Findings confirm chartered banks have establishcd specialized approaches to deal with KBBs. However, there is no evidence to indicate any ...