Exploring the determinants of SME'S choosing alternative financiers as compared to their primary bank

Abstract

The main goal of this study is to provide insight into the determinants and factors that influence SMEs when choosing alternative financiers than primary banks. For this study an SME's primary bank is recognised through making salary, creditor payment and receiving debtor payments for the SME. The research design is quantitative research and the participants represent an SME category, namely small or medium enterprises by the definition of the Banking Association of South Africa. A total of 65 participants participated by completing the 4-point Likert scale semi-structured questionnaire. The findings indicate that pricing and cost efficiency are the greatest determinant factors in the selecting of alternative financing resources. Also, the respondents agree that flexibility in the facility offering from financiers is an important factor when choosing alternative finance. Advertisements appear to be the least determining factor when selecting alternative finance. The respondents indicated that acquiring alternative finance does not disrupt nor is it inconvenient to their daily business activities. There are some limitations in a quantitative research design. The reliability is such a limitation because the sample size is relatively small. The study is of value to SME owners, researchers and academia because it provides an insight on alternative finance decisions regarding SMEs.