Small Business Financing (Editorial)

Small and medium-sized enterprises (SMEs) play a crucial role in fostering growth and employment in many countries in Europe and elsewhere in the world. However, these firms face serious financing difficulties, especially in times of crisis. Obviously, the financing of small business projects is a vital question which conditions the long-lasting viability of these firms. In this regard, the European Commission has endorsed, in June 2008, the implementation of a ‘Small Business Act' to promote opportunities of small business development. Several of these initiatives concern directly or indirectly the financing issues. The ‘Small Business Act' was re-examined, in February 2011, in order to analyse the ongoing concrete results of its application and to define new actions to meet the challenges related to the recent global crisis. Firms have a choice of several financing options, including trade credit, bank loans, private debt placements, and public debt offerings (Hooks, 2003). Jensen and Meckling (1976) argue that incentive problems between managers, shareholders and creditors tend to raise the cost of finance. When Modigliani and Miller's (1958) assumption of perfect information does not hold, firms display patterns or hierarchies in financing preferences (Agarwal and Elston, 2001; Myers and Majluf, 1984; Stiglitz and Weiss, 1981). Conflicts of interest related to firm financing are particularly important for small businesses because of a relatively high informational opacity and default risk (Ang et al., 1992; Berger and Udell, 1995). Thus, consequences of these conflicts of interest on corporate manager decisions could be particularly striking for the specific case of small businesses. Moreover, the 2008 global crisis has significantly affected the access to finance as well as the bankruptcy risk, especially for this category of firms (Fougère et al., 2012; Vermoesen et al., 2013). In this special issue, authors were invited to bring to the forefront developments and challenges related to small business financing, noticeably during periods of the recent financial crisis. The final selection includes six rigorous empirical papers from a broad spectrum of related issues.