Business start-ups and young enterprises introduce new products to the market and employ new processes for production. To create these new products and processes, firms often engage in R&D. Since conducting R&D is an expensive task, substantial financial resources are required. However, the internal financing capacity of young firms is limited. In this case, loans can relieve financing constraints on R&D activities.
The relationship between R&D activities and loan financing can, however, also be argued to go in the opposite direction: The ability of young enterprises to tap external financing sources depends, among other things, on growth opportunities that may be generated by R&D activities. Moreover, R&D expenditures are rather allocated into intangible assets that cannot serve as collaterals.
Fryges, Helmut; Kohn, Karsten; and Ullrich, Katrin
"THE INTERDEPENDENCE OF R&D ACTIVITY AND DEBT FINANCING OF BUSINESS START-UPS (SUMMARY),"
Frontiers of Entrepreneurship Research: Vol. 31
, Article 4.
Available at: http://digitalknowledge.babson.edu/fer/vol31/iss3/4