COMMERCIAL BANK LENDING TO SMALL BUSINESS ENTITIES: AN ECONOMETRIC ANALYSIS OF DETERMINANTS AND POLICY IMPLICATIONS

This paper investigates the determinants of commercial bank lending to small business entities (SBEs) using panel-data econometric methods. Small businesses are widely regarded as engines of employment and innovation, yet they consistently report financing constraints that are more binding than those faced by large corporations. Building on the existing empirical literature, the paper develops a conceptual framework in which small-business credit supply is driven jointly by bank-specific characteristics (size, liquidity, capitalisation, asset quality), borrower-specific risk indicators, and macroeconomic conditions. A fixed-effects panel regression and a dynamic Generalised Method of Moments (GMM) estimator are specified and applied to an illustrative bank-level panel dataset constructed for methodological demonstration. The results indicate that bank liquidity and capital adequacy are positively associated with small-business loan growth, non-performing loan ratios and lending interest rates are negatively associated with it, and macroeconomic growth exerts a positive and statistically significant effect. The paper concludes with policy recommendations aimed at improving small-business access to formal bank credit, including credit guarantee schemes, risk-based pricing infrastructure, and regulatory incentives for SME-oriented lending.