Determinants of Small and Medium Enterprises Financing Sources: Evidence from Ghana

Abstract

At all stages of development, SMEs are constrain financially. The purpose of this study was to assess the characteristics of SMEs and their choice of financing at the startup, daily operations, and expansion stage of their business. This study used a quantitative research methodology. The data collection were from 688 SMEs, through a survey questionnaire in the Accra/Tema and Kumasi Metropolitan areas in Ghana. Descriptive statistics and logit regression analysis were used to assess the characteristics of SMEs and their influence on the source of financing they chose. The study used the personal/manager attributes and firm attributes to determine SMEs source of financing decisions in the service sector, which serves the construction subsector. Most SME start-ups use informal sources, but this gradually improves at the business operations and expansion stages to using financing from formal sources. Financiers and policymakers should target SMEs at the start-up stages, as most use informal sources of finance more than during daily operations or at the expansion of business stages, even at that the other stages should not be ignored.