DIFFICULTIES FACED BY SMEs IN OBTAINING FINANCING FROM FINANCIAL INSTITUTIONS

Small and medium-size enterprises (SMEs) have long been recognised as one of the cornerstones of a country’s development. It is, thus, important to understand what contributes to their success as well as the difficulties they face. Surveys have shown that the lack of available financing from financial institutions is one of the biggest problems facing small businesses today. In this paper, we try to identify the aspects of obtaining financing that SMEs have most problems with as well as to determine which firm-specific factors (such as type of set-up, size of operation, years in operation and type of industry) contribute to the firms’ ability to borrow. The results of our survey indicate that the main reasons firms do not apply for financing from financial institutions are that they are unable or unwilling to provide information required; that they have other sources of funds available; and the high interest rates charged by the financial institutions. For the firms that applied, the main difficulties faced were the lack of collateral, the lack of proven track records, the lack of proper business plans and the need to show good sales turnover. Actions that may be taken by the SMEs, the financial institutions, the Singapore government and tertiary institutions are also discussed in this paper.