Financing future job creators

Abstract

Research has shown that young businesses with growth ambitions are important for job creation and innovation. A major obstacle to economic growth is the lack of financing for young firms.The Ratio Institute and the Swedish Federation of Business Owners have conducted a study to outline the financial sources of young and small businesses in Sweden and to investigate the challenges for financing the firms.

We use a sample of 380 limited liability firms in Sweden that are members of the Swedish Federation of Business Owners. The majority of the firms were founded 2010-2013. For our sample, the results show that the majority of the firms (87 %) use personal savings to finance their firms, while 28 % use bank loans which is the second most common type of finance. However, many of the firms that were approved bank loans report that they had to use personal assets as collateral and personal guarantees to back up their loans. Also, many entrepreneurs took a temporary employment elsewhere and didn’t take out any salary at some time.

Our results suggest that economic policies should focus on measures that improve personal wealth accumulation. The results give further support to the findings of recent studies that have been conducted in Sweden that personal wealth accumulation is important and that it is difficult to obtain bank loans for young businesses.