Financing
This section looks at various perspectives: academic, professional and political, for a complete understanding. In the SME world, specialisation is usually not very high, sometimes forcing a general perspective. Studies look at both government financing and private sector variants, including new ones such as shadow banking and initial coin offerings (ICOs). Certain publications that may not necessarily be considered dealing with SMEs are included.
Access to finance by SMEs has always been treated in the literature due to its capital importance. There are a few literature reviews on this subject matter. Abdulsaleh and Worthington present financial behaviour of SMEs,3 Roman shows country by country comparisons,4 and Kersten et al. look at low income countries and policies towards SMEs5, while Zabri et al. reference sustainability and owners/managers preferences,6 and Macado focuses on growth of SMEs.7 Some of the research taken into consideration considers both government-owned firms and private funding as well as behaviour of SMEs in the market. Sources of financing presented are among the most varied: from personal loans and friendsâ money, to venture capitalists and sales self-support. It can be argued that an SME can use all of them during its various development phases; shareholdersâ own money or business angels are typical to the start-up phase, progressing to more complicated financing schemes later on when the SME can be internationalised. Some authors counted sources and possibilities, while others even establish patterns of financing.8 It looks like there are 13 ways of financing SMEs around the world, some of them typical to some communities only (even in Europe), like Islamic banking. Research discovered that financing is influenced by location of the firm, age, industry sector and legal structure. It is interesting that even where money and solutions do exist, between 70% and 90% of SMEs fail, and the most common among surviving ones are micro companies, under a million dollar equivalent capitalisation.9
Books on financing of SMEs are subject to many designs, as sometimes the situation in Europe is not properly considered, but rather regarded in comparison, Europe being a good model to be judged against and compared to. This may give the impression that EU SME titles are rarer to encounter; an opinion which is not necessarily true when reviewing contents of the books. On the economic and political situation of SMEs financing in Europe there are more general and more specific works, which in our case can be divided into three categories: books on (1) framing the EU economy for SMEs, (2) EU SMEs, and (3) EU SME financing. One general title simply reads as Change in SMEs: Towards European Capitalism by Bluhn and Smith. This book provides general understanding of varieties of capitalism in Europe and entrepreneurship in various Member States, presenting organisational cultures and corporate finance. For the second category of books, those framing the SME world, some representative titles are: SME Performance: Separating Myth from Reality by John Watson, or SMEs, Unknown Stakeholder: Entrepreneurship in the political area by Massimiliano Di Bitetto. Some critics may argue that books on SMEs are too narrow, generally considering and analysing only the smaller companies, including start-ups and sole-proprietor companies. In this way, the old fashioned perception still persists, contrary to the EU definition, which presents an SME of a certain economic standard. Considering the third category, books on access to finance by SMEs, one great title is The Customer-Funded Business: Start, Finance or Grow Your Business with Your Customersâ Cash by John Mullins. This book is great when considering an organic way to grow your company from within the market, getting self-financed by a good sales strategy and more. Great case studies and even examples of day-to-day running of SMEs are provided. Other authors, including some contributors of this present book, would disagree with such an approach, favouring MTFs, or the more traditional bank-centred approach.
Before presenting some relevant books which primarily discuss our subject, it is worth mentioning that there is a special category of relevant books, practical but not that obvious, dealing with leadership, planning, self-development, and so on. A good publication is Who Moved My Cheese? by Spencer Johnson, which is a very good allegory of how business can be done, businesses âsniffed forâ, and what sort of skills and mindset a businessman needs. From the same category: The 4-Hour Workweek by Timothy Ferriss and the âoldies but goodiesâ Ricardo Semlerâs Maverik and The Seven Day Weekend. Extrapolating other classical titles, like The Prince by Niccolò Machiavelli, can be considered. Far too many academic business books present business as an easy-to-play game, creating the impression that anyone can do it. Business is something you can âtry at homeâ up to a certain level. However, at its heart, business takes place in a risk-taking environment, where scarcity exists, markets are not that rational, and even though win-win situations are the norm, overall the âbusiness industryâ tends to be a zero-sum game that never ends. It is for this Machiavellian reason, The Prince, an old European classical, fits in. After all, when financing an SME, skilful managers, ownersâ credibility, and image-capital and networking may prove to be decisive, more than numbers shown in the balance sheet. Profit must be seen, whatever the means.10
An excellent contribution to the study of SMEs can be found in David Munroâs A guide to SME financing, which in many ways has closed the gap between theory and practice. Munroâs research is very consistent. The book has a holistic approach and concentrates not only on the entity of the SME as such, b...
