The recourse to trade credit by Italian firms during the crisis

rade credit, for many firms, is an essential tool for financing growth. Trade credit indicates a practise to buy goods or services on account without making immediate cash payment. Although trade credit is an important source of funds for small businesses, little has been known about the reasons business customers use it. Economists have linked the use of trade credit to transaction and financing motive. The use of trade credit because credit from other sources, particularly from financial institutions, is limited during recession periods represents a reasonable motive. In order to verify if Italian firms faced to credit restrictions by recurring more intensively to trade credit, we examine micro data on about 3,500 Italian firms’ balance sheets conditions and credit demand during the period 2008-2011. This paper combines a unique dataset based on Central Balance Sheet Register data and results of an annual business survey of Industrial and Service Italian firms carried out by Bank of Italy (Invind Survey). This survey allows us to analyze the relationship between bank credit constraints and trade credit including questions about credit demand, credit constraints and recourse to trade credit both in terms of total amount and average duration. According to the Invind Survey credit-rationed firms corroborates at least one of following conditions: - firms request a larger amount of bank credit at the actual interest rate and collateral terms; - firms accept more stringent loan terms in order to increase the amount of borrowing; - firms ask for new banking and non banking loans but their applications have been partially or totally rejected. The empirical results indicate credit-rationed firms are not able to get larger amount of trade credit, while they increase trade credit usage by delaying payments to their suppliers.