External Sources of Finance for start-ups and SMEs
The limited availability of financial resources is one of the major constraints faced by start-ups and SMEs. What are the major sources of finance for start-ups and SMEs and why are such firms at a disadvantage in accessing external sources of finance?
Many multi-national corporations dominating the industries they operate in today have very humble beginnings. Today, thousands of people around the world wait in lines for hours so that they can be the first ones to purchase the new products of the technology giant, Apple, which started up in 1976 with three partners, a garage space and a big idea. Enormous corporations like Apple and Google, both started their journey to success and market domination in a garage. They, became the giant corporations they are today with the help of external sources of finance. However, considering the total number of start-ups and small enterprises in an economy, we can see that there is a very slim chance of a start-up or a small enterprise ‘making it’ and becoming world dominating giants like Apple and Google. Moreover, large corporations only make up about 5 per cent of the enterprise population in all countries. Therefore, because of the large number of small and medium sized enterprises, there is a decreased chance of a small enterprise or a start-up to have access to the necessary sources of external finance, which is crucial for a firm to grow bigger and succeed.
Being able to get access to such external sources finance has been a major constraint for the start-ups and SMEs, on the way to become larger multi-national corporations. Even though, start-ups and SMEs are the backbone of capitalist economies around the world, it is very challenging for them to grow or keep their market share steady. In this essay, I will examine these sources of finance and why it could be difficult for such firms to get access to them.
There are many ways in which small enterprises and start-up firms can obtain external sources of finance.
Many multi-national corporations dominating the industries they operate in today have very humble beginnings. Today, thousands of people around the world wait in lines for hours so that they can be the first ones to purchase the new products of the technology giant, Apple, which started up in 1976 with three partners, a garage space and a big idea. Enormous corporations like Apple and Google, both started their journey to success and market domination in a garage. They, became the giant corporations they are today with the help of external sources of finance. However, considering the total number of start-ups and small enterprises in an economy, we can see that there is a very slim chance of a start-up or a small enterprise ‘making it’ and becoming world dominating giants like Apple and Google. Moreover, large corporations only make up about 5 per cent of the enterprise population in all countries. Therefore, because of the large number of small and medium sized enterprises, there is a decreased chance of a small enterprise or a start-up to have access to the necessary sources of external finance, which is crucial for a firm to grow bigger and succeed.
Being able to get access to such external sources finance has been a major constraint for the start-ups and SMEs, on the way to become larger multi-national corporations. Even though, start-ups and SMEs are the backbone of capitalist economies around the world, it is very challenging for them to grow or keep their market share steady. In this essay, I will examine these sources of finance and why it could be difficult for such firms to get access to them.
There are many ways in which small enterprises and start-up firms can obtain external sources of finance.
Bibliography: Kerr, W. & Nanda, R. (2009). “Financing Constraints and Entrepreneurship”, National Bureau of Economic Research Mazanai, M. & Fatoki, O., (2012). “Access to Finance in the SME Sector: A South African Perspective” Asian Journal of Business Management 4, Maxwell Scientific Organizational Stiglitz, J.E. & Weiss, A. (1981), “Credit Rationing in Markets with Imperfect Information”, Am. Econ. Rev Storey, D. J. & Greene, F. J., (2010), “Small Business and Entrepreneurship”, Financial Times Prentice Hall Vanacker, T. & Manigart, S., (2007). "Incremental Financing Decisions in High Growth Companies: Pecking Order and Debt Capacity Considerations," Vlerick Leuven Gent Management School Working Paper Series 2007-22, Vlerick Leuven Gent Management School.