Sources of Financing & Difficulties of Raising Finance: The Case of Sri Lankan Entrepreneurs

Abstract

Entrepreneurship facilitates economic growth through innovation and creating employment opportunities. However, the accessibility on preferred sources of finance is the one of a major impediment to the success of entrepreneurship in Sri Lanka. Therefore, main objective of this study was to identify difficulties faced by entrepreneurs when accessing preferred financial sources. Identify the preferred sources of financing is the sub objective of this study. The population of this study was considered as firms with number of employees from 1 to 99 and selected 1000 firms as the sample covering all districts in Sri Lanka using convenience sampling technique. Structured questionnaire survey was used to collect data and with 81% response rate. Findings of the study showed that Sri Lankan entrepreneurs preferred own savings, long term debt, short term debt and bootstrap financing at their startup and future financial requirements through similar sources addition with retained earnings as their first choice. Further, major obstacles of accessing to finance were lack of collateral, poor relationship with institutions, higher interest rates, not a member of societies, not easy and not close and convenient due to complex and time consuming procedures. Interestingly, demographic factors such as gender, business sector, ownership structure and education level have an association with difficulties in accessing to sources of finance. The results of this study will help policy makers in defining policies and procedures to ensure reliable and easy accessibility to preferred financing of Sri Lankan entrepreneurs.