Deterioration in Borrowing Terms of Small Businesses: An Agency Perspective‪.‬

Introduction Small business owners frequently refer to banks as "fair weather" lenders, i.e., that bank debt is available only when the business is doing well and banks may recall their loans or apply more stringent borrowing terms when the economic situation deteriorates and the borrower's needs are acute. When this happens, the financial crisis faced by the small business is likely to be much worse than that of not obtaining debt financing in the first place because the small business will have made irreversible financial and strategic commitments plus incurred irrecoverable sunk costs. Therefore, understanding how to decrease this possibility should be of great importance to both owners of small business and small business management researchers. This dynamic aspect of debt financing for small business has not been examined before.