The financing of small entrepreneurs in Italy

This paper focuses on the financing of very small entrepreneurs in Italy by using data in the Survey of Household Income and Wealth. In the period 1989–2006 only a little more than one fourth of these micro-firms used bank loans for business purposes. Supply factors may have played a role in explaining this low usage of bank loans. In this paper I look at what happens after the deregulation and innovation that started in the Italian credit market during the 1990s. Financial constraints appear to have partly lessened in the current decade. Specifically, the North/South divide is fading a little: the negative direct effect on the probability of having a bank loan for a firm located in a Southern region is less strong. However, business location still plays an important role in the process of credit allocation, though indirectly through a greater sensitivity to proxies of internal finance for small entrepreneurs located in regions that are less financially developed.