Abstract
It is essential for small, medium, and micro enterprises (SMMEs) to become established, be sustainable and grow. These firms play a vital role in the economy of both developed and developing countries. Empirical studies have acknowledged the contribution of SMMEs to the economy, as well as to the gross domestic product. However, the failure rate of these firms has also been emphasized in the same studies. SMME survival is critical for economic growth, which is measured by increases in profits. Capital structure decisions are significant to the survival and growth of these entities. This study was conducted to examine the interplay between capital structure and SMMEs` survival and growth in a developing economy. A sample size of 103 SMMEs was chosen on a non-probability basis using convenience sampling within the eThekwini area, KwaZulu-Natal, South Africa. The statistical tool used for analysis in this study was the Partial Least Squares Structural Equation Modelling (PLS-SEM) 5.0 software. Capital structure was found to have a significant influence on the growth and survival of small, medium, and micro enterprises. The study concludes that utilizing retained earnings, personal savings, trade credit and funds from friends and family has a significant influence on the growth and survival of the firm. Debt and external equity financing, on the other hand, have an insignificant influence on the growth the firm.
Highlights
SMME survival is critical for economic growth, which is measured by increases in profits
Empirical studies have evinced that SMMEs across the world are engines in developing the economy, as these firms are perceived to be the hope for inequalities faced by these countries
The results reveal that the firm increased firms that had become smaller (2%); and 2% of the the employment during the operation of the firm, respondents stated that growth did not apply to it can be interpreted that these firms their firm
Summary
Empirical studies have evinced that SMMEs across the world are engines in developing the economy, as these firms are perceived to be the hope for inequalities faced by these countries. South African SMMEs have been found to be catalyst for substantial economic growth. The South African National Development Plan predicts that SMMEs will employ 90 percent of the country’s employment quota by 2030 (Mokuoane, 2016). Despite the noteworthy economic contribution by SMMEs, it is challenging for these firms to thrive due to various challenges. Access to adequate finance for SMMEs have been found to be the greatest challenge, with these firms relying on informal sources of funds rather than formal sources. Finance is a crucial matter for growing firms and the primary funds form a foundation from which other factors will be built on (Ngubane, 2015). According to Koropp, Grichnik, and Kellermanns (2013), access to adequate and suitable capital is one of the most crucial resources for a firm to grow and ensure the survival.
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