Debt Financing Option and Financial Performance of Micro and Small Enterprises: A Critical Literature Review

Abstract

This is a critical literature review on debt financing option and financial performance of Micro and small enterprises. Debt financing option for this review is evaluated in terms of trade credit, short-term loan and long-term loan. Whereas financial performance is evaluated using return on assets, current ratio and gross profit margin. The literatures reviewed include theoretical and empirical. The method used is the review of different articles, papers, and relevant previous studies where quantitative, descriptive, associative and predictive analyses were applied. As per the various literatures reviewed, conflicting findings were realized. A further study on whether effects of debt financing option on financial performance of Micro and Small Enterprises, depend on the power balance between business proprietors and financiers of enterprises, is recommended.

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