Article

Trade Credit and Its Role in Entrepreneurial Finance

Vicente Cuñat and Emilia García-Appendini

in The Oxford Handbook of Entrepreneurial Finance

Published in print March 2012 | ISBN: 9780195391244
Published online September 2012 | | DOI: http://dx.doi.org/10.1093/oxfordhb/9780195391244.013.0018

Series: Oxford Handbooks

 Trade Credit and Its Role in Entrepreneurial Finance

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Recent research has found evidence of the central role of trade credit in the financing of small businesses. In the United States, for example, trade credit is used by about 60 percent of small businesses; such a large incidence of use is not observed in any other financial service except checking accounts. This article analyzes several aspects of the trade credit agreement. It starts by explaining why trade credit is such an extended phenomenon in spite of the existence of a specialized financial sector. Then it discusses several aspects that make trade credit a unique and not fully contractual arrangement, whose value depends to a great extent on the value of the commercial relationship between the supplier and the buyer. It then focuses on the value of trade credit for entrepreneurial firms.

Keywords: trade credit; small businesses; entrepreneurial finance; contractual arrangement; commercial relationship; entrepreneurial firms

Article.  13471 words. 

Subjects: Economics ; Financial Markets ; Financial Institutions and Services

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