Has previous loan rejection scarred firms from applying for loans during Covid-19?

Marc Cowling*, Weixi Liu, Raffaella Calabrese

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


The concept of the ‘discouraged’ borrower is well documented. In this paper we consider whether smaller firms in the UK who have been previously rejected for bank loans have been scarred by the experience so badly that even in the presence of two exceptionally generous Covid-19 loan guarantee schemes they still refuse to make an application. Further, we also consider what happens when they do. As banks have either zero or minimal loss exposure, do they still maintain their normal strict lending protocols or do they relax their standards to fulfil the governments’ objective of supporting struggling businesses through the crisis? Our findings show that 72% of previously rejected borrowers are reluctant to request loans. We find some evidence that previously scarred firms faced such severe liquidity problems that they relaxed their distrust of banks during the Covid-19 crisis. However, their share of the governments guaranteed loan portfolio was slightly lower suggesting that banks were treating each new loan application on its merits.
Original languageEnglish
Number of pages24
JournalSmall Business Economics
Early online date18 Dec 2021
Publication statusE-pub ahead of print - 18 Dec 2021


  • scarred borrowers
  • discouraged borrowers
  • bank loans
  • SMEs
  • COVID-19


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