Barriers Facing Startup Small and Medium Enterprises (SMEs) In Accessing External Capital in Tanzania

Despite the important role played by small and medium enterprises (SMEs) in poverty reduction, economic development, job creation and innovation for both developing and developed countries, still there are serious impediments limiting the availability of affordable and timely finances to support the startup SMEs. There has been very little research exploring the impediments particularly related to external financing of the SMEs. . This study conducted in Tanzania in 2014 explores the barriers encountering startup SMEs in Morogoro Municipality to use external source of capital as their main source of capital at the initial stage of their businesses. The findings indicate that the requirements imposed by financiers such as banks and SACCOS to starting business are the main barriers to startup business to use external capital. In addition other factors include the lack of Collateral, information asymmetry, business plan and business registration were rated to be main barriers to startup businesses to use external sources of capital. It is suggested that , the government and other stakeholders including lenders need to make some innervations so as to mitigate the problem of failing to utilize external sources of capital.