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The availability of bank credit is often more important to a small firm than to a...

The availability of bank credit is often more important to a small firm than to a large one. Why?

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Answer #1

Large companies has the following advantages apart from the bank credit:

  • Large companies can issue bonds or preferred stock
  • Factoring of receivables is another opportunity available for large companies
  • Negotiating with suppliers for longer payments terms.

Small companies cannot implement these kind of strategies due to the regulatory costs associated with it and due to lack of leverage.

Hence small companies has to mostly depend on bank credit rather than any other source of financing, so, it is important to a small firm to get bank credit.

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