Small and Medium Enterprise (SME) financing: credit evaluation method / Anita Abu Hassan

The past literature on SME financing has discussed how the owners or managers of the firm preferred or choose sources of financing to finance their business. The preference of the sources of financing would change according to the business age (Hussain et al, 2006; Bhaird and Lucy, 2011), country (Hussain et al, 2006), owner’s education (Haileselasie, 2009), or even gender (Kim, 2018). The internal fund or retained earnings is the most preferred sources of fund. Based on the SME Annual Report 2018/19, the external debt financing was ranked number two in sources of financing by Malaysian SME after sources of financing from own cash and retained earnings. The dependencies of SME over the external debt financing in some of the countries including Malaysia to finance their business operation is high. Apart from the commercial banks, there are other institutions such as Development Finance Institutions (DFIs) or agencies under various ministries offering to finance not only to SME but also to micro-businesses. With the abundant offers from the banking system as well as from the government-related agencies to finance the SME, the issue of the limited access to external debt financing should not be the reason hindering SME to grow. The main constraint impeding SME business growth is not difficulties in accessing sufficient financing but it was due to an increase in competition and fluctuations in consumer demand (SME Annual Report, 2018/19).