Financing patterns of SMEs in India during 2006 to 2013 – an empirical analysis

The main purpose of the study is to provide a comprehensive view on the financing state of small and medium enterprises (SMEs) in India. Using the information from the financial statements of 1524 SMEs, provided by the database of Centre for Monitoring the Indian Economy, PROWESS, it analyses the financial ratios of SMEs and the components of debt during the period of 2006–2013. The study describes the financing pattern of SMEs by examining differences across the firm characteristics, namely size, age, ownership, sector, and region. The major findings revealed the dependence of SMEs on short-term debt, and the most frequently used sources of finance are trade credit and bank loans. Hierarchical regression analysis revealed that the major determinants of the capital structure of SMEs are age, profitability, tangibility, and liquidity. Overall, this study concludes that the financing condition of SMEs in India needs to be improved and, therefore, suggests exploring new financing avenues specifically designed to solve the problems of SME financing.