Exploring the Financial Gap for Small and Medium-Sized Enterprises (SMEs) in Ghana : A Case Study of Ghana

Abstract: Small and Medium Scale Enterprises (SMEs) tend by their very nature to show a far more volatile pattern of growth and earnings, with greater fluctuations, than larger companies. According to Organization for Economic Co-operation and Development (OECD) policy brief report on SME development in 2006, Financing is necessary to help Small and Medium Scale Enterprises (SMEs) set up and expand their operations, develop new products, and invest in new staff or production facilities. The study reveals that the major sources of finance for SMEs in Ghana are trade credit, bank overdraft and bank loans. The internal sources of finance and leasing or hire purchase are the minor source to which only few entrepreneurs resort to. The availability of external financing depends on various factors for instance, general economic outlook, access to public financial support including guarantees, firm-specific outlook with respect to their sales and profitability or business plan, firm’s own capital, firm’s credit history and willingness of commercial banks to provide loan. Many SMEs believe that access to internal funds, for example from retained earnings and sale of assets, bank loans, equity investments in the SMEs, trade credit, and other forms of financing, for example loan from a related company or shareholders, excluding trade credit, loan from family and friends, leasing and factoring are expected to improve the profitability and development of their businesses.