, & Demirguc-Kunt, A. (2006) present recent studies on access to finance by small and medium enterprises (SMEs) and conclude empirical research which shows that the access to finance is most important constraint for small and medium-size enterprises (SMEs). The financial and legal institutions play an important role in reducing this constraint. There is also a suggestion that innovative financing instruments can help and facilitate SMEs’ access to finance even in the absence of well developed institutions.
SMEs are more constrained by different hurdles and limited access to finance is one of important of these. Kerr, W., & Nanda, R. (2009) reviews two major streams for examining the relevance of financing constraints for entrepreneurship. The first stream is the impact of financial market development and the second one is the variations across individuals. The researchers highlight the financing constraints is one of the important areas for future policy and research. Beck, T.
(2007, April) summarizes recent empirical evidences on SMEs’ financing patterns and constraints. The transaction costs and asymmetrical information between lender and borrower are the two factors explaining the limited access to external finance by SMEs in both developed and developing countries. Panda, S., & Dash, S. (2014) research on constraints faced by entrepreneurs in developing countries. The researchers rank different constraints from an entrepreneurs’ perspective and observed that financial constraint is most important constraints. According to Andersen, S., & Nielsen, K.
M. (2012), the financial constraints are the main obstacles to entrepreneurship due to lower entrepreneurial ability. The entrepreneurial ability can be enhanced by a well functioning capital market by funding to able entrepreneurs. Maksimovic, V., Demirgüç-Kunt, A., & Ayyagari, M. (2006) find that the finance is one of the binding constraints which has direct association with the firm’s growth. The impact of financing obstacle on firm’s growth is strong to different samples of countries.
Frid, C. J., Wyman and et al (2016) find the relationship between low-wealth business founders and external start-up funding in the USA. The findings suggest that the start-ups by low-wealth founders may be undercapitalised. The low-wealth founders are not getting external funds from formal sources. The business founders having low wealth face significant hurdles to acquire funds during start-up.
Hashi, I., & Toçi, V. Z. (2010) assess the obstacles faced by firms in South East Europe (SEE) region due to determinants of financing constraints, credit rationing and financing. They assess based on some indicators and find that the small firms are facing relatively more constraints than the larger firms. The main obstacles are finance, relatively high interest rates and high collateral requirements for the operations and the growth of small firms.