Bank loan availability and trade credit for small businesses during the financial crisis

•We investigate the relationship between trade credit and bank loan availability for small businesses during the financial crisis.•We use the emergency credit guarantee program for small businesses in Japan as an exogenous shock that enhanced credit availability.•The relationship between trade payables and bank loans is one of complements, not substitutes.•The positive relationship between bank loan availability and trade receivables is supported. Using small business data, we investigate the relationship between bank loan availability and trade credit in Japan during the recent global financial crisis. Previous studies argue that the relationship between trade payables and bank loan availability is negative because trade credit is an inferior financial resource for firms. In addition, firms with better credit availability offer more trade credit to their customers. Specifying the credit guarantee program for small businesses introduced in Japan after October 2008 as an exogenous shock that enhanced credit availability, we find that small businesses increase trade credit (both payables and receivables) if bank loan availability improves. This implies that the relationship between trade payables and bank loans for small businesses is complementary. Furthermore, small businesses with enhanced credit availability offer more trade credit to their customers.