Financing Practices and Preferences for Micro and Small Firms

Abstract

In this paper I investigate the level of access of the opaque micro and small firms to finance. The objective of the paper is threefold: first to analyze how small and micro firms finance themselves, second to investigate what their financing preferences are and third to explore their opinions on how they evaluate the financing sources and the various obstacles to gain access to them. The simultaneous investigation of these issues reveals valuable information in the well known financing gap of small enterprises. I use a sample of Greek small and micro firms, representative of the population of small and micro firms in Greece, which cover 99.6% of the total number of firms operating in Greece. The data are derived from the answers in a structured questionnaire. The main conclusions are a. regarding equity financing: firms rely heavily on their own funds however they would not raise new equity from sources outside the family; thus, there is a reluctance in using new outside equity (venture capital, business angels and so on) b. regarding debt financing, firms have limited access to debt but they would use more debt than they currently do; thus, there is a financing gap in their access to debt finance, c. regarding grant financing, micro and small firms should be better informed and more encouraged to participate in state grants and co-financed projects; thus, there is an informational gap in grant financing.