INTRODUCTION In the UK both the adequacy of the supply of debt finance to small finns and the contractual conditions attaching to it have often been criticised by small-business pressure groups, researchers, govemment agencies and the mass media (see Keasey and Watson (1992) for a review). In spite of the fact that the main UK clearing banks provide around 90 per cent of all small-finn lending (Batchelor 1989b), they have been criticised f or being too 'risk -averse' and as being responsible for creating the so-called 'finance gap' (for example, see Bolton 1971; Wilson 1979), particularly in relation to the financial needs of rapidly-growing small finns. As we indicate later in the chapter, even if it could be unambiguously shown that substantial numbers of small finns with viable and highly profitable projects have been denied bank finance, it is far from clear that (a) an economically important gap with respect to debt finance

actually exists, or, (b) that the lending behaviour of the banks is unreasonable in this