Australian small- and medium-sized enterprises and their access to external debt finance

Small and medium-sized enterprises (SMEs) are widely recognised as the cornerstone of Australian economic prosperity. Access to external debt financing is essential for the ongoing development of the SME sector. Generally, SMEs find it difficult to access external finance because they lack the history and systems to demonstrate successful operation. Changes in the banking/finance sector, as part of the broader economic environment, have an essential impact on the supply of external debt finance to the SME sector. External economic conditions are not directly under SMEs' owner-mangers' control. However, SMEs' internal characteristics can be directly managed; as a result, it is possible to see which business characteristics do affect access to external debt finance. This provides the rationale for conducting the research in this thesis to answer the main research question: Do SMEs' characteristics influence access to external debt finance in Australia? The Australian Bureau of Statistics (ABS) Business Longitudinal Survey (BLS), was chosen as the primary data set for the analysis. The ABS carried out a Business Longitudinal Survey (BLS), which contains data on businesses for the periods 1995-1998 and 2004'2010. The results of a logistic regression analysis of the ABS BLS (2004-2010) suggest that incorporation, size, financial assistance received from the Australian Government, financial, operational, innovation and human resource measures are significantly related to the ability of SMEs to obtain debt finance. However, SMEs' industry, cost and quality measures were not found to be significantly related to the SMEs ability to access debt finance. The ordinary least squares (OLS) regression results generally support that business plan; incorporation and age are significantly and positively related to the level of the debt- to-equity ratio, whereas industry type was not. Findings reported in this thesis of a small survey of bank lending officers confirm the importance of the independent variables used in the empirical model tested and also indicate factors such as collateral, income/cash flows, character of the owner-manager and serviceability are important in the lending decision.