Credit constraints and the high-growth potential of SMEs: A cross-country analysis

This study investigates how various credit constraints influence SMEs' likelihood of becoming high-growth firms (HGFs), accounting for national financial development, firm size, and age. We propose a dynamic typology distinguishing short- vs. long-term constraints and behavioral forms (denial, partial rationing, self-rationing, discouragement) to refine SME growth theory. Using data from 64,943 SMEs in 22 European countries and applying probit and biprobit models with instrumental variables, we show that credit constraints significantly reduce HGF probability, with short-term constraints having the strongest impact. The country's financial development mitigates but does not fully offset these effects. Post hoc analyses reveal that discouraged borrowers face outcomes as adverse as those formally denied credit, emphasizing the behavioral dimension of credit access. Our findings highlight the multidimensional and context-dependent nature of credit constraints, advancing high-growth entrepreneurship theory by linking financial structures, behavioral perceptions, and growth trajectories. We offer actionable insights for tailoring SME financing policies across institutional settings.