Small And Medium-sized Enterprises Financing Research Articles

BCT Crowdfunding: Is It the Bridge of Trust Required for Funding EU’s SMEs?

Small and medium-sized enterprises (SMEs) are the cornerstone of the European eDaconomy, representing 99.8% of all businesses and providing 66% of employment. Despite their critical role, SMEs face significant challenges in accessing traditional financing, particularly in the aftermath of the 2008 financial crisis, which led to a reduction in riskier lending by banks. Crowdfunding has emerged as a viable alternative, offering a decentralized and democratized avenue for raising capital, especially through platforms powered by blockchain technology.This paper explores the potential of blockchain technology (BCT) to revolutionize crowdfunding within the European Union (EU), addressing the critical financial needs of SMEs. BCT enhances transparency, trust, and efficiency in crowdfunding by enabling features such as tokenization, smart contracts, and decentralization. These innovations offer solutions to longstanding issues in traditional finance, such as fraud, information asymmetry, and the reliance on intermediaries.However, the paper also highlights the limitations and challenges of crowdfunding in Europe, particularly the disparities in crowdfunding trends between the UK, Nordic countries, and the rest of the EU. Financial data from 2018 and projections for 2023 reveal that while the number of crowdfunding campaigns in the EU is growing, the per-campaign value remains significantly lower compared to the UK, reflecting a continued focus on smaller-scale investments.The integration of BCT into crowdfunding practices presents both opportunities and obstacles. Although it offers a promising path to more efficient and secure funding mechanisms, the successful implementation of BCT will require coordinated efforts from governments, regulatory bodies, financial institutions, and technology developers to navigate the complex legal and technological landscape.In conclusion, while blockchain-based crowdfunding has the potential to reshape SME financing in Europe, realizing its full benefits will demand proactive engagement with emerging challenges and continuous adaptation to evolving regulatory frameworks.

Study on the Two-Way Promotion Path of Green Financing for SMEs and Green Transformation of Urban Housing Projects in Guangdong Province in the Era of Digital Economy

Green transformation is a necessary path on the road of green development of small and medium-sized enterprises (SMEs), and it is also a top priority for implementing the concept of sustainable development. The article innovatively proposes a green transformation evaluation method for urban housing projects based on the ecological footprint theory, which clarifies the resource use of urban housing projects during the construction process through the ecological footprint calculation, clarifies their ecological deficits, and solves the reduction of their ecological footprints through the green transformation. A double-difference model is introduced to analyze the impact of SMEs’ green financing and issuance of green bonds on the green transformation of urban housing projects. The short-term market response of green bonds issued by SMEs with green financing and the environmental benefits of urban housing projects are also verified. Between 2012 and 2021, the ecological footprint of urban housing projects in Guangdong Province increased by 36,273,366 nha, an increase of 137.04%, and the reduction of ecological footprint in the planning and construction phase of urban housing projects in Guangdong Province after the implementation of the green transformation strategy totaled 10,377.85 nha. Whenever the level of SMEs’ green financing and issuance of green bonds is increased by 1%, the reduction of ecological footprint of the green transformation of urban housing projects will be increased by 1%. Transformation of the ecological footprint reduction will be enhanced by 4.059. Relying on the green financing behavior of SMEs can promote the enhancement of the short-term market effect of the enterprise, and can also effectively enhance the utilization rate of green building materials in urban housing projects, and help the green transformation of urban housing projects.

SMEs as catalysts for economic development: Navigating challenges and seizing opportunities in emerging markets

Small and medium-sized enterprises (SMEs) play a critical role in the economic development of emerging markets, acting as catalysts for innovation, job creation, and poverty reduction. They are often the backbone of these economies, driving growth through their adaptability and entrepreneurial spirit. However, SMEs also face significant challenges that must be navigated to fully capitalize on their potential. One of the primary challenges SMEs encounter in emerging markets is limited access to finance. Traditional banks often view SMEs as high-risk investments due to their smaller size and lack of collateral. This financing gap can stifle their growth and innovation capabilities. To address this, microfinance institutions and digital lending platforms have emerged as crucial alternatives, providing SMEs with much-needed capital. According to the International Finance Corporation (IFC), improving access to finance for SMEs could increase GDP growth rates significantly in emerging economies. Another critical challenge is the lack of infrastructure, which can impede business operations and logistics. In many emerging markets, inadequate transportation networks, unreliable power supply, and limited internet connectivity hinder SME productivity and market reach. Governments and international organizations are increasingly investing in infrastructure development to create a more conducive environment for SMEs. The World Bank, for instance, has various programs aimed at enhancing infrastructure in emerging markets, thereby facilitating better business operations for SMEs. In terms of opportunities, the digital revolution offers vast potential for SMEs. Digital tools and platforms enable SMEs to reach broader markets, streamline operations, and improve customer engagement. E-commerce, in particular, allows SMEs to overcome geographical limitations and tap into global markets. Additionally, leveraging social media for marketing can significantly enhance brand visibility and customer acquisition. Furthermore, emerging markets often present a youthful and growing consumer base, eager for new products and services. SMEs can seize this opportunity by tailoring their offerings to meet local preferences and demands. This consumer-centric approach can lead to increased loyalty and market share. In conclusion, while SMEs in emerging markets face considerable challenges, the opportunities for growth and impact are immense. By improving access to finance, investing in infrastructure, and embracing digital tools, SMEs can drive substantial economic development. Policymakers, financial institutions, and international organizations must continue to support these enterprises to unlock their full potential and foster sustainable economic growth.

Untangling cross-border interfirm effects in SMEs’ working capital financing: A cyber-behavioral signaling perspective

This study analyzes the intricate dynamics of cross-border interfirm interactions in the working capital financing of small and medium-sized enterprises (SMEs) by using a novel cyber-behavioral signaling perspective. It emphasizes the pivotal role played by the generation and transmission of credible signals to mitigate informational disparities inherent in SME finance. While extant literature predominantly focuses on physical-centric signal types, our work sheds light on SMEs’ strategic use of behavioral factors in the network ecology to generate and transmit signals. Grounded in signaling theory and informed by network ecology, we propose that network ecology constitutes a fertile environment for SMEs to effectively communicate their creditworthiness through high-quality signals. Using survey data from 276 Chinese SMEs, our empirical analysis reveals that cross-border interfirm effects—both unintentional network spillover and intentional network transitivity—significantly bolster SME financing outcomes. Leveraging digital knowledge repositories mediates the strength and effectiveness of these signals, and exerts an even stronger positive impact on SME working capital financing in the absence of well-established normative mechanisms in the wider business ecosystem. By integrating a cyber-behavioral dimension into signaling theory within the SME financing domain, this research offers new understanding on how SMEs can harness the untapped power of their interconnected relationships to secure external capital. The study contributes to theory and practice by elucidating pathways for SMEs to navigate complex interfirm linkages to facilitate improved access to working capital.

Financing of new SMEs in Latvia – opportunities and obstacles

The relevance of the study is related to the fact that the predominant factor for the development of economic activity for newly established enterprises is the possibility of business financing. However, despite the availability of alternative sources of financing for new small and medium-sized enterprises (SMEs), there are various obstacles to obtaining them. The aim of the study is to analyse the opportunities for raising finance from various financial sources and the related obstacles for new SMEs in Latvia. The study used quantitative and qualitative methods of analysis, a survey of SME entrepreneurs, structured interviews with experts, data processing methods and the method of analysis and synthesis. This paper determines for what purpose and what financial sources entrepreneurs will use if necessary, as well as what obstacles exist to obtaining financing. The results of this study may be beneficial for both financial organizations that finance companies and new SMEs in the financial decision-making process.

FinTech developments and their heterogeneous effect on digital finance for SMEs and entrepreneurship: evidence from 47 African countries

Purpose Lack of access to finance is a major constraint to the growth of small and medium-sized enterprises (SMEs) and entrepreneurship in developing countries. The recent proliferation of mobile phone services, access to the internet and emerging technologies has led to a surge in the use of FinTech in Africa and is transforming the financial sector. This paper aims to examine whether FinTech developments heterogeneously contribute to the growth of digital finance for SMEs and entrepreneurship in 47 African countries from 2013 to 2020. Design/methodology/approach The paper uses a novel method of moments quantile regression, which deals with heterogeneity and endogeneity in diverse conditions for asymmetric and nonlinear models. Findings The empirical results reveal that the rise of FinTech companies offering services in Africa heterogeneously increases digital finance for SMEs and entrepreneurship in their different stages of growth. FinTech developments have a strong and positive impact in countries with higher levels of digital finance than those with lower levels. FinTech developments and digital finance positively and significantly influence entrepreneurship in Africa, particularly in the nascent and transitional development stages of entrepreneurship. Institutional quality has a considerable positive moderating effect when used as a control rather than an interaction variable. Practical implications The results suggest the need to promote FinTech developments in Africa: to provide a wide range of alternative digital finance schemes to SMEs and to promote entrepreneurship, especially in countries where entrepreneurship is in the nascent and transitional development stages. The results also underscore the need to promote FinTech development through supportive regulations and institutional quality to reduce risks related to FinTech and digital financing schemes. Originality/value To the best of the authors’ knowledge, this paper is one of the first attempts to account for the often overlooked heterogeneity effects and show that the influence of FinTech developments is not homogenous across the varying development stages of digital finance and entrepreneurship.

Understanding dollar dynamics and SME performance in GCC economies

PurposeThis study investigates the impact of US dollar volatility and oil rents on the performance of small and medium-sized enterprises (SMEs) in the Gulf Cooperation Council (GCC) region, with an emphasis on understanding how these factors influence SME financing constraints in economies with fixed currency regimes.Design/methodology/approachEmploying a random effects panel regression analysis, this research considers US dollar volatility and oil rents as independent variables, with SME performance, measured through the financing gap, as the dependent variable. Controls such as trade balance, inflation deltas and gross domestic product (GDP) growth are included to isolate their effects on SME financing constraints.FindingsThe study reveals a significant positive relationship between dollar volatility and the financing gap, suggesting that increased volatility can exacerbate SME financing constraints. Conversely, oil rents did not show a significant direct influence on SME performance. The trade balance and inflation deltas were found to have significant effects, highlighting the multifaceted nature of economic variables affecting SMEs.Research limitations/implicationsThe study acknowledges potential biases due to omitted variables and the limitations inherent in the use of secondary data.Practical implicationsFindings offer pertinent guidance for SMEs and policymakers in the GCC region seeking to develop strategies that mitigate the impact of currency volatility and support SME financing.Originality/valueThe research provides new insights into the dynamics of SME performance within fixed currency regimes, which significantly contributes to the limited literature in this area. The paper further underscores the complex connections between global economic factors and SME financial health.

Entrepreneurial financing: how global and regional export intentions affect financial and non-financial choices for small and midsized enterprises in low-income countries

PurposeThe study explores how the intention to export affects financing and non-financing variables for small and medium-sized enterprises (SMEs) in a low-income country (LIC). The objectives of this study are (1) to discern between regional and global exporting and (2) to evaluate its policymaking implications.Design/methodology/approachPrimary survey data were collected from 330 Rwandan SMEs and were analysed using ordered logistic models as an application of the expectation-maximisation iterating algorithm, which was tested for robustness using a sampling model variation.FindingsThe results show that alternative sources of finance are the predominant choice to finance the intention to export within and outside Africa. As the scope of export intentions broadened from regional to global, there was a shift in preferences from less formal to more formal lending technologies, moving from methods like factoring to lines of credit. Moreover, reliance on bank officers became more significant, with increasing marginal effects. Finally, the study determined that government financing schemes were not relevant for SMEs pursuing either regional or global exporting.Practical implicationsWhilst alternative sources of finance predominate the export intentions of Rwandan SMEs, establishing a robust banking relationship becomes crucial for global exporting. Despite this implication, the intention to export should prompt more transparent communication regarding government financial support programmes. There is an opportunity for increased usage of relationship lending to customise support for SMEs involved in exporting, benefiting both the private and public sectors.Originality/valueThis study accentuates how export distance alters SME financing priorities. The results also contribute to understanding how the value of relationship lending changes when less familiar markets (i.e. global exporting) are the objective. Moreover, the study offers a new perspective on how institutional voids affect entrepreneurial financing decisions in LICs.

Deciphering the shadows: an empirical exploration of corruption’s impact on SMEs credit costs in OECD countries

Purpose This study aims to investigate the intricate relationship between corruption and the credit costs faced by small and medium-sized enterprises (SMEs) in OECD countries, a critical yet underexplored area in financial crime research. The primary aim is to dissect and understand how corruption impacts SMEs’ access to credit, highlighting a significant yet overlooked aspect of financial crime. This research seeks to fill a gap in the literature by providing empirical insights into the economic consequences of corruption, specifically on SMEs financing. Design/methodology/approach This study used secondary panel data from the World Bank and OECD databases. The data covered the period 2007–2020 for 25 OECD countries. This study used interest rate for SMEs loans as a dependent variable and GDP per capita, inflation and corruption index as independent variables. This study used the panel autoregressive distributed lag (ARDL) model to examine the relationship between variables. Findings The empirical findings derived from Panel ARDL postulate an intriguing dichotomy in the effects of GDP per capita, inflation rate and corruption on interest rates in both the short and long run. It was discerned that an increase in GDP per capita and inflation rate correlates with a decrement in interest rates in the long run, suggesting a potential compromise by central banks between controlling inflation and fostering economic growth. Originality/value This paper makes a novel contribution to the field of financial crime by illuminating the often-overlooked economic dimensions of corruption in the context of SMEs financing. It provides a unique perspective on the ripple effects of corrupt practices in credit markets, enriching the academic discourse and informing practical approaches to combating financial crime.

Decentralized Data and Artificial Intelligence Orchestration for Transparent and Efficient Small and Medium-Sized Enterprises Trade Financing

The complexities arising from disparate data sources, conflicting contracts, residency requirements, and the demand for multiple AI models in trade finance supply chains have hindered small and medium-sized enterprises (SMEs) with limited resources from harnessing the benefits of artificial intelligence (AI) capabilities, which could otherwise enhance their business efficiency and predictability. This paper introduces a decentralized AI orchestration framework that prioritizes transparency and explainability, offering valuable insights to funders, such as banks, and aiding them in overcoming the challenges associated with assessing SMEs’ financial credibility. By utilizing an orchestration technique involving symbolic reasoners, language models, and data-driven predictive tools, the framework empowers funders to make more informed decisions regarding cash flow prediction, finance rate optimization, and ecosystem risk assessment, ultimately facilitating improved access to pre-shipment trade finance for SMEs and enhancing overall supply chain operations.

Impact of Digital Inclusive Finance on Financing Constraints of Small and Medium-Sized Enterprises Review

This review examines the influence of digital inclusive finance (DIF) on financing constraints of small and medium-sized enterprises (SMEs). As DIF is introduced to more and more enterprises, it has brought many opportunities to enterprises along with global economic growth. The introduction and development of digital financial inclusion has eased the financing constraints of SMEs, reduced information asymmetry and costs, and improved efficiency and capital availability. Research shows that digital financial inclusion has an alleviating effect on financing constraints. This paper provides a review of current research, including an overview of digital financial inclusion, SME financing constraints, and how digital financial inclusion affects SME financing constraints. In addition, this paper states the possible solutions for how digital inclusion can be more widely promoted. Additionally, this paper finds the shortcomings of the existing research to provide a different point of view for future researchers to look at the influence of digital inclusive finance on the financing constraints of SMEs.

Government procurement contracts, external audit certification, and financing of small-and medium-sized enterprises

Government procurement contracts, external audit certification, and financing of small-and medium-sized enterprises

A methodological framework for exploring SME finance with SAFE data.

Research on small and medium-sized enterprises (SMEs) access to bank finance is vital for the euro area economy. SMEs heavily represent the European business sector, employing around 100 million people and accounting for more than half of the Gross Domestic Product. Research studies in the field often rely on the ECB/EC Survey on the Access to Finance of Enterprises (SAFE). Many studies employ probit or logit models with categorical dependent variables derived from SAFE. The research findings show that hardly any study employs the simpler linear probability model (LPM), with a dominant lack of research providing evidence that justifies the model selection process and suitability. However, it is well known that different econometrics models can lack consistency and frequently yield different results. Yet, the literature has no consensus on the best econometric approach. In addition, there is a lack of robustness tests in the literature to ensure model validity, underlining the need for a comprehensive review of the methodological framework that dominates SAFE data use. This paper addresses the identified research gap by introducing a robust methodological framework that helps researchers identify and choose an appropriate categorical model when using SAFE data. The study adds significant value to the extant literature by identifying four criteria that need to be considered when selecting the appropriate model among three common binary dependent models: LPM, probit and logit models. The findings show that the probit model was appropriate is all cases but that the LPM should not be disregarded, as it can be used in two cases: when considering the interaction between monetary policy and debt to assets and monetary policy and innovation. The use of the LPM is justified as a less complex econometric model, allowing for clearer communication of the results. This innovative, robust approach to choosing the appropriate econometric categorical dependent model when employing SAFE data contributes to support policy effectively.

Proactive legal design—making sustainability visible and monitorable in SME loan agreements

According to the European Commission's Sustainable Finance Strategy, the financial system has a key role to play in promoting sustainable development toward a greener and more sustainable economy. Small and Medium-sized Enterprises (SMEs) represent over 99% of all European businesses and are responsible for around 60% of all business greenhouse gas emissions. Small and Medium-sized Enterprises are therefore crucial to the success of the European Union's sustainability transition. The share of sustainable finance for SMEs will grow both as a result of increasing sustainability legislation and the expectations of customers and stakeholders. However, integrating sustainability can be challenging for SMEs due to limited resources and expertise. The article highlights the importance of clear, transparent, and implementable contract documents as tools to enhance sustainability in financing. Proactive contracting and legal design approaches are discussed as means to transform contracts into management and communication tools, to promote sustainable business practices.

Explore the Impact of China Fintech Loans on the Financing of SMEs

As an important part of the economy, small and medium-sized enterprises (SMEs) play an important role in the recovery of the economy after the epidemic, but the financing difficulties of SMEs have been exposed but not solved. Fintech is the core force to practice inclusive finance and an important breakthrough to improve the financing constraints of SMEs. Fintech loans rely on big data to conduct credit evaluation and risk management for SMEs and play an important role in expanding corporate financing channels, accelerating loan efficiency, and reducing financial discrimination. First, this paper summarizes the financing status of SMEs in China and then subdivides Fintech loans. From the perspectives of bank Fintech loan use and Fintech loan company development, this paper presents the impact of Fintech loans on SME loans and the relationship between different Fintech loans and summarizes the shortcomings of Fintech loans in resolving the financing problems of SMEs. Finally, based on the current research status and objective reality, it provides suggestions for future research directions.

The Role of Artificial Intelligence, Financial and Non-Financial Data in Credit Risk Prediction: Literature Review


 
 
 
 Small and medium-sized enterprises (SMEs) are of major importance in world economies and job creation. Financing is one of the key issues for SME development since SMEs are often considered riskier than large companies. It is argued in the literature that artificial intelligence (AI) and non-financial data could increase the financial inclusion of disadvantaged groups, such as SMEs. This article presents an overview of selected studies on credit risk prediction from the 1960s to 2022, covering topics of research work applying classical statistical methods, studies using AI methods on traditional financial data and studies applying AI methods on non-financial data. Literature overview results showed that the inclusion of non-financial data in credit risk prediction models could increase credit risk prediction performance, while AI methods can enable the inclusion of non-financial data. Since non-financial data potentially could be used as alternative data in credit prediction models, AI and non-financial data could help to increase access to finance for SMEs
 
 
 

FinTech and SMEs financing: A systematic literature review and bibliometric analysis

Small and medium-sized enterprises (SMEs) face obstacles in raising capital and accessing financial services due to information asymmetry, high transaction costs and lack of collateral. FinTech developments have made gathering and sharing information easier, changed how funds are mobilized and allocated, and increased capital-raising activities. This paper conducts a systematic literature review on FinTech and SME financing for the period 2008–2022. So far there are unstructured and separate publications on this topic. Therefore, there is a need to consolidate the empirical research and their findings on the effectiveness of FinTech in meeting SMEs' financing needs. The bibliometric findings show that few studies on FinTech and SME financing are empirical in nature. These empirical studies surged a decade later after FinTech 3.0 started in 2008, with the majority of them using quantitative methods based on data from surveys and FinTech platforms. Furthermore, emerging alternative digital financing to SMEs have attracted more empirical studies than those on FinTech and bank lending to SMEs. In terms of publications, China is dominating, followed by the United States. The content analysis shows that FinTech has increased the ability of financial and non-financial institutions to collect and process accurate information about SMEs, thus reducing information asymmetry and transaction costs. FinTech has also increased the speed and quality of the lending cycle, from establishing an SME pipeline, collecting and processing information, to loan screening, monitoring and repayment. Finally, the paper presents research gaps and areas for future studies, challenges and policy recommendations on this novel subject.

Equity capital financing of Swedish SMEs, innovation, and decentralized management

Purpose The purpose of this paper is to investigate the potential link between Sweden’s high reliance on equity capital financing among small and medium-sized enterprises (SMEs) and its recognition as the most innovative economy in Europe according to the European Innovation Scoreboard (EIS). This paper examines the idea that the high levels of trust within Swedish society can explain why private equity financing is more prevalent among Swedish SMEs. Design/methodology/approach To test these ideas, the authors use data from the Survey on Access to Finance for Enterprises to measure the private equity reliance of firms. The authors also use the EIS to measure the innovation capacity of nations and various aspects of SMEs’ innovation activities. Finally, societal levels of trust are measured through the World Value Survey. Findings First, the authors find that European countries with a higher proportion of SMEs relying on equity financing tend to be ranked as more innovative by the EIS. Second, the authors find that the correlation between a nation’s share of SMEs relying on equity financing and their level of innovation activities is marginally stronger for product innovations than for business process innovations. Third, the authors find that countries with higher levels of trust tend to have higher equity capital reliance among SMEs. Originality/value This study builds upon previous research on equity capital and SMEs’ innovation activity while introducing new insights into the relationship between societal trust and equity financing.

Challenges Faced by Small and Medium-sized Enterprises in China When Seeking Low-cost Financing

SME (small and medium-sized Enterprises) financing has been difficult in recent years. But, SMEs are vital to the economy and must be helped to thrive. China calls SMEs "Five, Six, Seven, Eight, and Nine" since they account for more than 50% of national tax revenue, 60% of GDP, 70% of technological innovation, 80% of jobs, and 90% of enterprises. SMEs drive long-term, sustainable economic growth that benefits everyone. But, reducing SMEs' breathing space will hurt China's economy. Thus, SMEs' problems are the economy's problems, and it is worth investigating and trying to solve them. Most studies examine SMEs' finance dilemma's causes, while others focus on a specific solution. This paper examines these finance issues and weighs the pros and cons of various solutions. This paper uses a literature review to explore China's economy, the problem, risk perception, and its effects. The study also discusses possible solutions and future development.

Dynamic Evolutionary Game Approach for Blockchain-Driven Incentive and Restraint Mechanism in Supply Chain Financing

The sustainability of financing is an important measure in the development of supply chains. However, the difficulty and high cost of financing have always been critical factors hindering the sustainable development of small and medium-sized enterprises (SMEs). Blockchain technology (BT) is an effective tool to relieve the current problem. Based on it, this study aims to establish Blockchain-driven incentives and restraint mechanisms for SME financing using a dynamic game model in which financial institutions (FIs) and new agricultural business entities (NABEs) are regarded as game subjects. By analyzing the impact of key parameters on the equilibrium state of the game for all stakeholders, several findings are drawn as follows. (1) The usage of BT affects FI loan strategies by influencing their cost in supply chain financing. (2) The usage of BT affects NABE’s strategy choice by influencing their loan interest rate. (3) The usage of BT affects NABE’s strategy choice by influencing their default losses. (4) The usage of BT affects NABE’s and FI’s strategy choices by influencing their additional benefits. This study provides decision-making support for optimal strategy decisions under different conditions and serves as a theoretical reference for the government in formulating financing incentive and restraint mechanisms.