The study explores the financial pattern of Small and Medium Enterprises (SMEs) in Khyber Pakhtunkhwa (KP) province of Pakistan. Financial pattern including overall management of finances sources, the obstacles in financing and to identify the most lucrative sources of financing. The data is gathered through 200 questionnaires distributed in four districts, namely, Peshawar, Mardan, Swat and Haripur of Khyber Pakhtunkhwa using the snowball sampling technique. The reason for choosing KP province is that it has a meager proportion of about 5% in total 3.2 million SMEs in Pakistan. The research explores the financial reasons for such a low number of SMEs in KP. The results of the study show that major problem to SMEs is an access to formal financing sector including high interest rate, high collateral requirements and the complex documentation process to get loans. The major source of financing in KP is equity capital and re-invested profit made by business. The findings also indicate that majority of managers and owners of SMEs are dissatisfied from the banks and policies of Small and Medium Enterprises Development Authority (SMEDA). The study suggests that SMEDA should have clear and transparent policies and vision to fulfill the financial needs of SMEs from the formal financial Institutions. Similarly, banks should tailor their products and services according to the needs of SMEs.
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