ACCESS TO FINANCE PERCEIVED AS AN OBSTACLE AND THE CHARACTERISTICS OF THE SMME AND ITS OWNER: EVIDENCE FROM THE FREE STATE GOLDFIELDS – SOUTH AFRICA

Abstract

The firm-financing gap is a term commonly used to describe the lack of access to finance encountered by enterprises. Insufficient finance is a major impediment to corporate expansion, and small firms face greater challenges than larger firms in acquiring credit. It is vital to investigate the factors that may become an obstacle in accessing finance by SMMEs. Therefore, this study investigates whether access to finance is perceived as an obstacle based on the characteristics inherent to SMMEs and their owners in the Matjhabeng municipality in the Free State Goldfields in South Africa. A survey strategy is used in the current study. Using a sample of 364 SMMEs, three regression analyses are run. The results indicate that SMMEs in the start-up phase of their life cycle are more likely to perceive access to finance as an obstacle. This is exacerbated when SMMEs do not keep financial records and do not own immovable property. SMMEs thus need to continuously demonstrate their capacity to formally document the actual performance of the business. These entities further need to prioritise building assets that can be pledged as collateral.