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Exploring the lack of funding for small & medium-size enterprises

Arnogiannakis Alexandros

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Summary

Small and medium sized enterprises (SME) constitute the driving force of the global economy. It is an undeniable fact that access to finance have a prominent place in their operations. Howbeit, it has been noted that many times SMEs experience limited access to finance, which acts as a hurdle so for their development, as for the development of the country’s economy in which they operate. The amount of money needed to fund current business processes and future operations planning, which is not available from banks, financial markers or other forms of credit is called the financing gap. This study inspects specific characteristics that may influence the conceived financing gap from SME’s, through the use of a composite indicator. The analysis was made possible through utilizing a linear regression model for panel data, with data obtained from SME’s throughout Europe. The results suggest that attaining a smaller financing gap a SME is made possible through improving parameters such as SME’s profits, creditworthiness, bank loan availability, banks willingness to provide credit, own capital, general economic outlook and future availability of loans. It is also worth noting that, SMEs with more years of functioning are connected to lower financing gap. On the other hand, an increase in the need for bank loan may possibly be an indicator for an increased financing gap. In a nutshell, this particular thesis provides a deeper understanding on the behavior of the financing gap for small and medium sized enterprises. Acquiring a more scrupulous insight on the financing gap will allow financial institutions to create a more integrated economical system, one that will allow even and more opportunities for SMEs to obtain access to finance.

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