Uses of Equity Capital by Small Firms—Findings from the Surveys of Small Business Finances (for 1993 & 1998)
While the importance of venture capital to the growth of small firms has been widely discussed during the past decade, little is know about the uses of equity capital, especially internal equity capital, by majority of small firms in the United States. Information from the Federal Reserve Board's Survey of Small Business Finances provides a rare opportunity to examine this important issue. This paper utilizes the information collected in the 1993 and 1998 Small Business Finance surveys to investigate the uses of equity capital by small firms. We found that while the importance of public issue markets (IPOs) and the role of venture capital investment in promoting the growth of small dynamic firms cannot be denied, the importance of external equity capital in promoting the formation and the growth of small firms seems to be overstated. Only a very small number of small firms used external equity. In fact, the information on the uses of venture capital (equity capital from external sources) from the national surveys is too limited to permit a statistical analysis of the factors determining their uses by small firms. It is the internal equity capital, not external equity, that is one of the major financing sources for most of small firms in these surveys. A majority of small firms relied on internal sources of capital (owner’s capital, owner’s loans, and retained earnings) and external borrowing from financial institutions to finance their business operation and growth. There appeared to be a "pecking order" of borrowing from financial sources from internal sources to financial institutions to non- financial lenders. In addition, internal equity and commercial bank loans appeared to be complementary financial resources.
|Date of creation:||2003|
|Date of revision:|
|Contact details of provider:|| Postal: 409 Third Street, SW, Washington DC 20416|
Web page: http://www.sba.gov/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:sba:wpaper:03co. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Victoria Williams)or (Rob Kleinsteuber)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.