Abstract:
Access to the source of initial capital is fundamental and still remains a challenge for the startup business. Especially it is challenging for those developing countries in Sub-Saharan African
countries including Ethiopia. Thus, the purpose of this study is to investigate what factors
explain micro and small Enterprise’s access to initial financial sources in Jimma town. Although
the financial determining variables in obtaining a source of finance are studied by different
researchers around the world and locally studied by few researchers in different regions, to my
knowledge, no study has been conducted on the matter and no solution on these obstacles has
been recommended in Jimma town. The study is designed as explanatory and employed the
quantitative approach, in which stratified sampling was employed to select 343 micro and small
enterprises from the overall enterprises in Jimma town. In order to find out major determinants,
the study uses the Statistical Package for Social Science version 20 to run Binary Logistic
Regression Model. The major findings of the study show that there exists significantly, the
positive relation between certain attributes of institutions and owner-manager including; a legal
form of business, lending procedure, educational level of the owner, gender, marital status,
religion, and age of the owner-manager. The study further found that distance from financial
institutions can negatively and significantly affect access to finance. Lastly, the findings have the
following major recommendations’. It is required more effort from the micro and small
Enterprises side to overcome their drawbacks by extending the highest educational level for
themselves and starting a business with their maturity age. Also forming their business as a
partnership is highly recommended to have access to initial financial sources. On the other hand
microfinance institutions have to facilitate the supply of finance by improving a long time for the
loan process and other bureaucracies. And Policymakers of government bodies have to minimize
a large amount of advance savings to supply loans to MSE.
