Microenterprises and Significant Risk Factors in Loan Process

Abstract

IntroductionSmall and medium-sized enterprises (SMEs) make a major contribution to growth and employment in the EU. In today's fierce competition in the market economic activities, the SMEs gradually developed into a major force for national economic and social development (Shuying and Mei, 2014).Microenterprises represent an important part of the SME segment. Defined as a small, owner-operated enterprise typically started by a member of a marginalized segment of the population, these businesses take on various organizational forms to contend with entry barriers and capital constraints (Munoz et al., 2015; De Mel, McKenzie, and Woodruff, 2010; Bruhn, 2013).Financial risk management has received increased attention over the past years because of financial risks, though they are not a core competency of non-financial firms, they also influence their business operations, financial performance and the future of the company to a large extend. The ability of SMEs to grow highly depends on their potential to invest in restructuring, innovation and qualification. All of these investments need capital and therefore an access to finance (European Association of Craft, SMEs, 2007).The effect of the access to finance on entrepreneurship and microenterprise growth is of vital importance for poverty reduction and economic growth in developing countries (Beck, Lu, and Yang, 2015).Entrepreneurs' characteristics, such as gender, level of education, age, managerial skills, and experience, in addition to physical and emotional family support, are the important factors that influence business success (Munoz et al., 2015; Kozubikova et al., 2015a; Bartos et al., 2015) and represent significant factors which determine the approach to financial risk management and access to external financing through bank loans (Belas et al., 2015; Dolezal et al., 2015).The aim of this paper is to define and quantify significant risk factors of microenterprises' credit financing in the current dynamic economic environment and to compare the significant position of these undertakings in relation to commercial banks by gender, education of the entrepreneur and the company's age. The paper is based on the survey of the quality of the business environment carried out in 2015 in Czech Republic on a sample of 1141 small and medium sized enterprises, 740 of which were reported as microenterprises. Our research has some limitations, specifically the geographical focus only on the Czech Republic. This problem is significant because country's specific macro environment can also affect the possibility to get the loan by the SMEs (Drakos and Giannakopolous, 2011). A wider geographical focus of the further researches may bring more fundamental results.Theoretical part of this paper introduces the characteristics of a microenterprises, important factors for financing of such type of companies, and the potential influence of the gender and education of the entrepreneur, and the age of the company. The second part of the article presents a detailed description of the research methodology, scientific methods, collected data, and a definition of the alternative working hypotheses. The third chapter of our article presents the results of the research, along with a brief discussion. The final section presents the summary of the essential results of our research.1. Theoretical backgroundMicroenterprises have some characteristic features in comparison with small and medium size enterprises (SMEs). They are typically firms that are smaller than the SMEs, with few employees and often without formal status (Beck, Lu, and Yang, 2015).According to Fetisovova, Hucova, Nagy and Vlachynský (2012) Small and medium sized enterprises have a number of specifics that are related to their size: a lower degree of diversification, low capital strength, limited markets and higher risk. On the other hand, they are more flexible and have a closer contact with customers. …