Facilitation of Access to Credit and Finance

Financing for SMEs in the appropriate forms is important at all stages of the business life cycle, in order to enable these firms to start up, develop and grow, and make contributions to employment, growth and social inclusion. Access to finance improves post-entry performance of start-ups and industries which are more dependent on external finance grow relatively faster in countries with more developed financial markets, thanks to enhanced information sharing and risk management, and a better allocation of resources to profitable investment projects

In the presence of information asymmetries—and due to the particular characteristics of small and medium enterprises—SMEs face more difficulties in gaining access to finance than larger firms. Research on the determinants of access to finance indicates that size is one of the main factors affecting the probability that firms will face financial constraints, particularly in developing economies. SMEs also tend to rely more on trade credit and informal sources (such as money lenders, friends and relatives) to finance their working capital and investments.