Financing of New SMEs in Latvia – Opportunities and Obstacles
DOI:
https://doi.org/10.12775/CJFA.2024.003Keywords
new enterprises, small and medium-sized enterprises (SMEs), financing, access to finance, financial institutionAbstract
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.
References
Abbasi, W.A., & Wang, Z. (2017). Potential Sources of Financing for Small and Medium Enterprises (SMEs) and Role of Government in Supporting SMEs. Journal of Small Business and Entrepreneurship Development, 5(2), 39-47. https://doi.org/10.15640/jsbed.v5n2a4.
Abdulsaleh, A.M., & Worthington, A.C. (2013). Small and Medium-Sized Enterprises Financing: A Review of Literature. International Journal of Business and Management, 8(14), 36-54. http://dx.doi.org/10.5539/ijbm.v8n14p36.
Aggarwal, A., & Acharya, S.R. (2019). Choosing equity as a source of finance: perception of SME promoters. Copernican Journal of Finance & Accounting, 8(4), 27–46. http://dx.doi.org/10.12775/CJFA.2019.016.
Agyei, J., Sun, S., & Abrokwah, E. (2020). Trade-Off Theory Versus Pecking Order Theory: Ghanaian Evidence. SAGE Open, 10(3). https://dx.doi.org/10.1177/2158244020940987.
Beck, T., Demirguc-Kunt, A., & Maksimovic, V. (2008). Financing patterns around the world: Are small firms different? Journal of Financial Economics, 89(3), 467-487. https://doi.org/10.1016/j.jfineco.2007.10.005.
Black, L. (2009). Information asymmetries between lenders and the availability of competitive outside offers. In Workshop on Entrepreneurial Finance hosted by the Federal Reserve Bank of Cleveland and Kauffman Foundation, Cleveland, OH. https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&doi=7f72ca81c566862d01c7141e1db096b79120d96c (accessed: 15.09.2023).
Chavis, L., Klapper, L., & Love I. (2011). The Impact of the Business Environment on Young Firm Financing. The World Bank Economic Review, 25(3), 486-507. http://dx.doi.org/10.1093/wber/lhr045.
Doacă, E.M. (2022). The influence of the macroeconomic environment on the financing decision in SMEs. Proceedings of CBU in Economics and Business, 3, 25-31. https://dx.doi.org./10.12955/peb.v3.289.
European Bank for Reconstruction and Development (EBRD) (2022). Diagnostic of Estonia, Latvia and Lithuania. https://www.ebrd.com/publications/country-diagnostics (accessed: 04.03.2024).
European Central Bank (ECB) (2023). Survey on the Access to Finance of Enterprises (SAFE). https://www.ecb.europa.eu/stats/ecb_surveys/safe/html/ecb.safe202311~c94d2c3a78.en.html#toc1 (accessed: 04.03.2024).
Finnegan, M., & Kapoor, S. (2023). ECB unconventional monetary policy and SME access to finance. Small Business Economics, 61, 1253–1288. http://dx.doi.org/10.1007/s11187-023-00730-0.
Gregory, B., Rutherford, M., Oswald, S., & Gardiner, L. (2005). An Empirical Investigation of the Growth Cycle Theory of Small Firm Financing. Journal of Small Business Management, 43(4), 382-392. http://dx.doi.org/10.1111/j.1540-627X.2005.00143.x.
Jonikas, D. (2017). Startup Evolution Curve From Idea to Profitable and Scalable Business: Startup Marketing Manual. CreateSpace Independent Publishing Platform. https://evolutioncurve.com/wp-content/uploads/2017/06/Startup-Evolution-Curve_Excerpt-2017-05-31.pdf (accessed: 19.09.2023).
Klein, M., Neitzert, F., Hartmann-Wendels, T., & Kraus, S. (2019). Start-up financing in the digital age – A systematic review and comparison of new forms of financing. The Journal of Entrepreneurial Finance, 21(2), 45-98. https://dx.doi.org/10.57229/2373-1761.1353.
Kumar, S., Colombage, S., & Rao, P. (2017). Research on capital structure determinants: a review and future directions. International Journal of Managerial Finance, 13(2), 106-132. https://dx.doi.org/10.1108/IJMF-09-2014-0135.
Kwaak, T., Clarke, M., Kok, J., Snijders, J., Tollenaar, S., Galesloot, S., & Sadilek, M.O. (2021). Survey on the access to finance of enterprises (SAFE), Analytical Report 2021, Brussels: European Commission. https://single-market-economy.ec.europa.eu/system/files/2021-11/Analytical%20report%202021.pdf (accessed: 12.08.2023).
La Rocca, M., La Rocca, T., & Cariola, A. (2011). Capital Structure Decisions During a Firm's Life Cycle. Small Business Economics, 37(1), 107-130. http://dx.doi.org/10.1007/s11187-009-9229-z.
Law on Annual Statements and Consolidated Annual Statements (October 22, 2015). https://likumi.lv/ta/en/en/id/277779 (accessed: 06.10.2023).
López-Gracia, J., & Sogorb-Mira, F. (2008). Testing trade-off and pecking order theories financing SMEs. Small Business Economics, 31, 117–136. https://dx.doi.org/10.1007/s11187-007-9088-4.
Lursoft (2023). Number of active companies broken down into activity types. https://statistika.lursoft.lv/en/statistics/districts-and-municipalities/number-of-active-companies/district/riga/ (accessed: 09.10.2023).
Ministry of Economics of the LR (2019). Assessing the Latvian start-up ecosystem, identifying the current state and building on it development of proposals. https://www.em.gov.lv/sites/em/files/2019-03-27_11_46_18_jaunuznemumu_petijums1.pdf (accessed: 08.09.2023).
Moore, D., & McCabe, G. (2009). Introduction to the Practice of Statistics. New York: W. H. Freeman, 443. https://handoutset.com/wp-content/uploads/2022/07/Introduction-to-the-Practice-of-Statistics-6th-Edition-David-S.-Moore-George-P.-McCabe-Bruce-Craig.pdf (accessed: 24.10.2023).
Newman, A., Borgia, D., & Deng Z. (2013). How do SMEs with single and multiple owners finance their operations differently? Empirical evidence from China. Thunderbird International Business Review, 55(5), 531–544. https://dx.doi.org/10.1002/tie.21568.
Official statistics portal (2023). Economically active enterprises in regions. https://data.stat.gov.lv/ (accessed: 11.10.2023).
Organisation for Economic Co-operation and Development (OECD) (2022). Financing SMEs and Entrepreneurs 2022. https://dx.doi.org/10.1787/e9073a0f-en.
Ou, C., & Haynes, G.W. (2006). Acquisition of Additional Equity Capital by Small Firms – Findings from the National Survey of Small Business Finances. Small Business Economics, 27(2), 157-168. http://dx.doi.org/10.1007/s11187-006-0009-8.
Pandula, G. (2011). An empirical investigation of small and medium enterprises’ access to bank finance: the case of an emerging economy. Proceedings of ASBBS, 18(1), 255–273. https://asbbs.org/files/2011/ASBBS2011v1/PDF/P/PandulaG.pdf (accessed: 18.09.2023).
Ramalho, J., & Vidigal da Silva, J. (2009). A two-part fractional regression model for the financial leverage decisions of micro, small, medium and large firms, Quantitative Finance, 9(5), 621-636. https://dx.doi.org/10.1080/14697680802448777.
Roman, A., & Rusu, V.D. (2015). Financing of the EU SMEs by the Capital Markets: An Overview. Ovidius University Annals: Economic Sciences Series, 546-551. https://ideas.repec.org/a/ovi/oviste/vxvy2015i2p546-551.html (accessed: 05.03.2024).
Rupeika-Apoga, R. (2014). Financing in SMEs: Case of the Baltic States/ Procedia - Social and Behavioral Sciences, 150, 116–125. https://dx.doi.org/10.1016/j.sbspro.2014.09.013.
Rupeika-Apoga, R., & Saksonova, S. (2018). SMEs' alternative financing: The case of Latvia. European Research Studies Journal, 21(3), 43-52. https://www.researchgate.net/publication/328131108_SMEs'_alternative_financing_The_case_of_Latvia (accessed: 06.03.2024).
Saksonova, S., & Papiashvili, T. (2021). Micro and small businesses access to finance and financial literacy of their owners: evidence from Latvia, Estonia and Georgia. Reliability and Statistics in Transportation and Communication, 667-677. https://dx.doi.org/10.1007/978-3-030-68476-1_62.
Sbeti, W.M., & Moosa, I. (2012). Firm-specific factors as determinants of capital structure in the absence of taxes. Applied Financial Economics, 22(3), 209–213. https://dx.doi.org/10.1080/09603107.2011.610738.
Tefera, K.T. (2019). Determinants of Access to Finance for Micro and Small Scale Enterprises in Nekemte Town. Research Journal of Finance and Accounting, 10(19), 34-46. https://dx.doi.org/10.7176/rjfa/10-19-04.
Vasilescu, L. (2019). Private Equity As Financing Source For SMEs – An Outlook. Annals of University of Craiova - Economic Sciences Series, University of Craiova, Faculty of Economics and Business Administration, 1(47), 87-95. https://ideas.repec.org/a/aio/aucsse/v1y2019i47p87-95.html (accessed: 04.03.2024).
Vasilescu, L., & Tudor, S. (2015). External Financing for EU SMEs – Challenges, Measures and Trends. Ovidius University Annals: Economic Sciences Series, 565-569. https://ideas.repec.org/a/ovi/oviste/vxvy2015i2p565-569.html (accessed: 05.03.2024).
Wu, J., Song, J., & Zeng, C. (2008). An empirical evidence of small business financing in China, Management Research News, 31(12), 959-975. https://doi.org/10.1108/01409170810920666.
Yang, J.S., Kuntchev, V., Ramalho, R., & Rodriguez-Meza, J. (2013). What have we learned from the Enterprise Surveys regarding access to finance by SMEs? Policy Research Working Paper, Washington: D.C.: World Bank. http://hdl.handle.net/10986/16885 (accessed: 17.09.2023).
Downloads
Published
How to Cite
Issue
Section
License
This work is licensed under a Creative Commons Attribution-NoDerivatives 4.0 International License.
Stats
Number of views and downloads: 219
Number of citations: 0
