Financial access for starting a business: Evidence of internal and external financial sources, and performance of Malaysian SMEs

Abstract

The main objective of this study is to unearth the impact of internal and external funding sources for starting a business on the performance of SMEs, and to identify the potential of other core variables namely business experience, educational level, and size of firm, which may significantly influence the SMEs' performance. The data was collected from 484 SMEs via a structured questionnaire and analyzed by using the Structural Equation Modeling (SEM) technique. The study found that the internal and external sources of finance were insignificantly related to the SMEs? performance, while business experience, level of education, and firm size were positively related to the SMEs' performance. The findings of this study reveal that finance is not the main source that needs to be taken into account by entrepreneurs, supporting institutions, and policy makers in improving the SMEs? performance. Further research in this area of study should extend into examining and adding more components that are relevant to a variation of the SMEs? performance.