External financing of innovative small and medium enterprises (SMEs): unpacking bank credit with respect to innovation typologies and combinations

We investigate the extent to which small and medium enterprises’ (SMEs) external financing varies with the innovation profiles they reveal in terms of introduced and combined innovation typologies. Using Survey on the Access to Finance of Enterprises data, we address this research issue with respect to 11 European countries over the 2014–2019 period and overcome the context specificity of previous analyses. Results suggest that the innovative profile of SMEs is responsible for several nuances in both their demand for and supply of bank loans. Being an innovator increases SMEs’ credit requests, but this demand increases also and above all with their involvement in specific innovation typologies and combinations. Having an innovative profile of nearly any type does not lead SMEs to refrain from demanding bank loans because of a fear of rejection, but a wide involvement in specific innovation types reduces the chance that their internal funds make them refrain from asking for credit. Innovative SMEs are significantly more likely to be credit-constrained than non-innovative ones, but the probability of not receiving bank loans increases only for firms that combine specific innovation typologies. An innovation status of SMEs makes banks more selective in their decision to completely fulfill a credit request, but the probability of this decision decreases only with respect to a few, multi-innovation profiles. The extent to which SMEs innovate in different domains, rather than the simple innovation intensity, appears to be a crucial dimension to consider in future research and in devising policies to attenuate financial constraints to innovation.