Overcoming Barriers to Credit Availability for SMEs Dissertation

Overcoming Barriers to Credit Availability for SMEs - Dissertation Example Introduction and Relation to Previous Research Availability of finance for small and medium enterprises (SMEs) has been a topic of research among academicians since it impacts the economy of a nation (Beck and Demirguc-Kunt,2006; OECD,2004). One of the perennial problems faced by SMEs is the access to capital (Scholz,2007).There has been extensive research on why SMEs find it difficult to obtain funding, why transparent SMEs stand better chance of finance availability than opaque SMEs, how financing differs from traditional SMEs to innovative SMEs and what SMEs can do to improve their chances of obtaining finances, given that they function in a regulated environment. This topic is of interest since access to financing has been identified in many business surveys as one of the most significant obstacles to the survival and growth of SMEs (OECD,2004).It will be of value to understand what are the barriers that exist in financing of SMEs and what can be done both by financial Institutions and SMEs to overcome the same. Barriers to SME Financing According to OECD (2006) reasons identified for SMEs inability to procure finances especially in comparison with larger firms usually include: ï‚ § Incomplete range of financial products and services ï‚ § Regulatory rigidities or gaps in the legal framework ï‚ § Lack of information on both the bank’s and the SME’s side. Banks may avoid providing financing to certain types of SMEs, in particular, start ups and very young firms that typically lack sufficient collateral.