The effects of mergers and acquisitions on small business lending Essay

The effects of mergers and acquisitions on small business lending - Essay Example Besides the expected advantages arising from consolidations taking place in small businesses, mergers and acquisitions play an important role in increasing the size of banking institutions in a country. These benefits include; mobilizing of domestic savings, which are necessary for investments, deepening and increasing intermediation processes, as well as reduction of inefficiencies entrenched in businesses and other economic activities. However, there is one thing that has remained unclear in many economies, that is; the impact that mergers and acquisition have on credit creation to small and medium-sized businesses in a country. Studies indicate that large and complex organisations that are created by mergers and acquisitions in the banking sector are less disposed compared to small institutions that are less complex. The research further reveals that most of these borrowers in small businesses are dependent on banks for credit; however, they hardly get it following the new business developments in the banking sector. The reason for this development follows the fact that the large financial institutions resulting from mergers and acquisition in the banking are usually not interested in extending loans and other credit facilities that requite close knowledge of particular small business (Haq 2005). This comes about because there are several diseconomies that arise from the process of such loans, as well as other financial products to not only small business, but also to medium-sized enterprises. The diseconomies that large financial institutions face in advancing credit to small businesses often arises from several factors, first, lending to these businesses is distinctly different in terms of their activities, which requires the mergers and acquisitions to have different technologies and a special lending culture that takes care of these concerns (Haq