Exploring Key Determinants of Microenterprises Financing Preferences

Financing has persistently been a major consideration in business development. Previous studies have revealed multiple factors that influence financing decisions of businesses, particularly for larger organizations. However, this area has received little attention within the microenterprises. This study examines the key determinants of the choice of finance among micro-sized enterprises. Using a quantitative research design, this study collected the data via a questionnaire survey conducted among micro-size enterprises in Malaysia. After several follow-ups, 164 responses were collected. The analyses indicate that most respondents preferred using internal funding. The binomial logistic regression shows a significant influence between the level of internal funds and the sales level on the choice of internal finance. As the amount increases, the owner's dependence on external finance decreases. Additionally, owners are more likely to use external funding when they have a higher educational level, exhibit a higher propensity for debt commitment, and when the external fund providers offer a more streamlined loan application process. The study contends that a combination of preferences, business, and owner characteristics can explain the choice of financing sources among microenterprises. This study provides new evidence on key determinants that influence micro-sized enterprises' decisions on business finance. Therefore, the findings of this study aid policymakers and credit providers in comprehending the funding requirements and formulating valuable strategies to enhance access to capital and financial assistance for microenterprises in Malaysia.