Exploration of Financing Decisions of Small and Medium Enterprises: A Detailed Literature Review

Abstract

The objective of our study is to look into the financing decisions of small and medium enterprises. For this, we reviewed through literature on financing decisions. We did a thorough review of the literature. We gathered several research papers from various databases using specified keywords and then sorted them according to distinct uses. The results show that the main variables that affect the SMEs’ capital structure are age, profitability, size, growth, and tangibility. Age, experience, gender, ethnicity, and education are some of the attributes and personal traits that have a higher influence on financial decision-making. The majority of SMEs use short-term loans to fund their demands. Internally generated funds are preferred by the firms. MSMEs confront numerous challenges, including the inability to get internal and external financing, the necessity of collateral securities, the complex lending processes of lending institutions, such as unnecessary formalities and extensive paperwork, and high interest rates. With the help of this study, we have been able to know that what are the financing preferences of SMEs, how they finance themselves and what problems they face while financing.