Information asymmetry can be reduced via three ways: a firm’s ability to signal its credit worthiness (incl. an institutional assessment or rating by an independent agency and the provision of collateral), a strong relationship between lender and borrower, and through due diligence/lenders’ examination (screening). However, this means on the other hand that new or young firms, with a lack of collateral and by definition without track record are the ones with the greatest degree of difficulty accessing debt capital (Equinox, 2002). Micro-enterprises, young companies or start-ups by definition have no track record, often only limited collateral, and no long standing.
