Abstract
Small- and Medium-sized Enterprises (SMEs) are major contributors to the economy of most countries, but under the ‘credit crunch’ it has been suggested that many SMEs are facing a range of difficulties. In this context, it is increasingly important to consider the factors influencing the survival of SMEs. However, the research on SME default is surprisingly limited. We reviewed the media accounts of SME performance under the current economic downturn. We suggest that it may not be the ‘credit crunch’ and the restriction of credit itself that has an impact on SME survival, but rather the consequences arising from the recession. The difficulties may lie with downturn in trade leading to reduction in cash flow and turnover, and this may be exacerbated by a slowdown in the rate of payments for all businesses. These aspects feed through to the higher risk premium that may be charged to SMEs. The review of related literature on modelling SME default and their performance in previous recessions identifies aspects that are important for survival.
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