Financing practices and preferences for micro and small firms

Abstract

PurposeThe aims of the paper are three‐fold: first, to analyse how small and micro firms finance themselves; second, to investigate what their financing preferences are; and third, to explore their opinions on how they evaluate the financing sources and the various obstacles they face in accessing those sources.Design/methodology/approachThe paper uses a sample of Greek small and micro firms, which cover 99.6 per cent of the total number of firms operating in Greece. The data are derived from the answers in a structured questionnaire.FindingsThe main conclusions are as follows. Regarding equity financing, firms rely heavily on their own funds and would not raise new equity from sources outside the family; thus, there is a reluctance to use new outside equity (venture capital, business angels, etc.). Regarding debt financing, firms denoted that they would use more debt, specifically long‐term debt, than they currently do. Thus, there are limitations in accessing long‐term debt financing. Regarding grant financing, micro and small firms should be better informed and encouraged more to participate in state grants and co‐financed programs; thus, there is an informational gap in grant financing.Originality/valueThe paper uses a sample of Greek micro and small firms and a survey methodology to tackle the lack of quantitative published data for most small firms in Greece. It incorporates distinct sources of funds that are very important for small firms (family funds, grants provided by the state and micro‐loans). It investigates preferences, not just practices.

The Scope and Effectiveness of Support for the Innovative Potential of Small Business in the European Union

“…In addition, in the case of the medium-sized companies, non-repayable financial support gains relatively large importance. This is confirmed by the results of earlier research of N. Daskalakis, R. Jarvis and E. Schizas [40] concerning the preferences and the structure of financing of micro and small enterprises. They are generally characterized by a limited focus on the use of external sources of financing, primarily as a result of a variety of barriers related to access to capital.…”

“…K. Amess, J. Stiebale, and M. Wright [68] indicate that PE companies do not promote short-term cost-cutting at the expense of entrepreneurial investment opportunities with a long-term pay-off. Specific preferences of SMEs, expressed in their unwillingness to use capital support from outside the ranks of the family [40], are also a problem. As a result, the assessment of the impact of external capital support on the innovative potential of small business is ambiguous and requires in-depth empirical research.…”

“…Previous research results suggest a relatively small scope of the use of this support by the SME sector companies. This is due to the qualitative specificity of small business associated with the concentration of management in the hands of the owner/manager, an orientation towards a high level of autonomy and independence of operation [39], as well as an aversion to the use of external financing [40]. It also results from the information gap existing in small business in terms of the possibilities of the use of support, especially support of a financial nature [41], as well as too complicated procedures and requirements for the acquisition and use of external support [42].…”

The mediating effect of microfinancing on access to finance and growth of microenterprises: evidence from the Philippines

“…This implies that borrowing takes place after own capital has been consumed. Literature supports the argument that microenterprises and small firms optimize the use of available capital before borrowing (Daskalakis, 2013;Abdulsaleh & Worthington, 2013). Consequently, the limitation of capital restricts microenterprises and small firms from competing in the market.…”

Exclude Me Not: The Untold Story of Immigrant Entrepreneurs in Sweden

“…This aspect makes it very hard or even impossible for immigrant entrepreneurs to get such loans as they are considered new entities in the application for providers. Hence, immigrant entrepreneurs may prefer to use other financial resources such as savings, borrowing money from their informal networks, family members or other immigrant businesses before turning to financial institutions [99].…”