Determinants of Choice of Alternative Financing Modes for SME’s, a Review of Literature

The aim of this paper is to ascertain varying literature on determinants of choice of alternative financing modes for Small and Medium-size Enterprises (SME’s) with a view of enhancing the scope and access of alternative sources of finance for SME’s, owing to their unique financial needs. Increased momentum of economic growth strains formal finance, necessitating a search for alternative finance to sustain or accelerate the positive trends. Although there are quite a number of alternative sources of finance, information is lacking scanty on some alternatives while on others, it is lacking. Consequential therefrom, SME’s fail to pursue available modes of alternative sources of finance. This review therefore, uses available literature and solely focusses on the diverse determinants of choice of alternative financing modes and makes policy recommendations. This paper underscores the nexus between financial services and economic growth. That finance in SME’s determines SME’s mortality rate, recent rapid economic developments necessitate study of alternative finance. We establish scarce mention of determinants of choice of alternative financing modes. Emergent though that some determinant of choice of alternative sources of finance include formal finance constraints, SME characteristics and business environment.