Sources of Finance for SMEs in UK and US

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There is a relative non transparent system of registration and information disclosure for SMEs in UK and US as compared with publicly held businesses, due to which SMEs face difficulties in sending credible signals to banks, creditors and venture capitalist and get limited access to the external funds (Ang, p185, 1992).


Thus the sizes, related industry, year of operating and organizational forms are the most important factors that determine the finance sources for a SME (Rutherford, Oswald, n.p, 1999) and most of the SMEs get finance through their internal funds like the starting capital of the owner, loan arranged by the owner of SME and the retained earning. However along with these internal sources the SME get external debts from the financial institution also and this credit help the SMEs in financing their different business operations.
The main sources of finance for the SMEs of UK are identified in the survey conducted by Federation of Small Businesses (FSB) in 2004. According to the figures provided by FSB, SMEs do use more then one source to finance their business. 50.8% of the SMEs in UK use the bank drafts to finance their business, 30. 6% used personal savings, 29.5% use bank loans, 28.5% use retained profits and 25.5% use credit cards debts to finance their business (Carter et al, p14, 2004). The report of FSB further disclosed that leasing and factoring are not commonly used by the SMEs for getting credits to finance the business. ...
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