Studies of Small Business Finance: Equity Participation Agreements and Commercial Bank Loans to Small Business Firms

摘要

The author shows that use of Equity Participation Agreements (EPAs) account for less than one half of one percent of total bank commercial loans surveyed. This amount is far lower than expected because EPA use has benefits for both lender and borrower. The lender benefits by receiving more protection if the borrower increases the riskiness of his business or if the borrower defaults. The borrower benefits because EPAs can reduce constrictive loan terms and can be a relatively painless method for paying a lender for extra services.