Using a representative survey-based dataset for Swiss SMEs, we analyze their access to finance. We model the credit allocation process for SMEs into a sequence of three steps and differentiate between “no-need”, “discouraged”,“denied” and "approved" firms. We set a specific focus on discouraged firms, those firms who reported a need for credit but did not apply for one, for reasons such as the fear of being turned down or the expectation of unfavorable interest rates and collateral requirements. Our results reveal that the group of discouraged borrowers is more similar to the denied borrowers than to the group of approved borrowers. Nevertheless, even with a conservative prediction, about 60 percent of the discouraged firms would have obtained a credit, if they applied for one. The self-rationing mechanism observed is thus rather inefficient and banks and policy makers should think about how to lower the group of discouraged borrowers.
