Funding Self-Employment: The Role of Consumer Credit

Abstract

This paper investigates whether self-employed households use consumer loans - in particular instalment loans and overdrafts - to finance business activities. Controlling for financial and non-financial household variables we show that self-employed households particularly use personal overdrafts significantly more often than employee households. When analyzing the correlation between consumer loan takeups and consumption of self-employed in comparison to employee households, we find first evidence that overdrafts are used by self-employed to finance their business as well. This indicates that intermingling constitutes a financing strategy when regular business loans might not be accessible.