Difficulties in Securing Funding from Banks: Success Factors for Small and Medium Enterprises (SMEs)

Previous literature indicates that small and medium enterprises (SMEs) experience problems securing funds from banks to development their businesses.Although SMEs are the backbone of every country and play a significant role in economic development, banks still appear reluctant to approve loans, especially to micro businesses. This situation has resulted in some SMEs turning to illegal money lenders/loan sharks or “Ah Long”, because this is the fastest and easiest way of obtaining finance.Nevertheless, banks must consider several factors before they can approve a loan to SMEs because the credit risk associated with such a loan is high. The aims of this paper are to (i) explain the problems that banks face with loan applications by SMEs and (ii) examine the factors involved in obtaining loans from banks. The study employed a qualitative research approach, with officials from five banks in Malaysia interviewed about problems they faced with loan applications from SMEs.The paper attempts to contribute theoretically and practically to the literature on SMEs and provide information for SMEs on the factors that must be considered when dealing with banks.