THE DETERMINANT FACTORS OF MICRO, SMALL, AND MEDIUM ENTERPRISES TOWARDS FINANCING SOURCE DECISION
Abstract
A country can be considered developing if the total number of entrepreneurs reaches 4% of the total population. Up until now, total number of entrepreneurs in Indonesia only reaches 3.31% of the total population and more than 99% of them are Micro, Small, and Medium enterprises while the rests are big corporations. SMEs give a significant contribution to the country’s economies. They contributed 58.65% to the national gross domestic product and fashion industry is awarded as the second largest contribution to the national GDP. They contribute up to 166,135.30 million rupiah to the national gross domestic product. However, starting a new business is a difficult process, especially when it comes to financing constraints. Most SMEs have limited sources to run and scaling their business. This circumstance occurs because entrepreneurs do not really know what to be concerned in deciding the financing source for their business, while financial planning and management are the important things of survival for SMEs. Other than that, most entrepreneurs did less exploration about various financing sources. This research purposes is to examine the factors of that influence SMEs’ intention to used internal or external financing source. This research also provides short explanation about various types of financing sources. There are two options for the financing sources in this research, either from internal or external. This research used quantitative approach by spreading a questionnaire to SMEs that run in fashion industry and domiciled in Jakarta and Bandung. Collected data was analyse using Ordinal Logistic Regression. From 192 respondents, the result of this research is that there are several factors that influence entrepreneurs’ intention in deciding their financing source to run their business. Access to financing is significantly affects SMEs in deciding to use internal financing source, while gender is the only one that significantly influence SMEs in deciding to use external financing source. In conclusion, access to financing and gender are two significant factors that influence SMEs in making financing source decision.
Keywords: 1 SMEs · 2 Financial literacy · 3 Financial behaviour · 4 Access to financing · 5 Financing source decision
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