Abstract:
Small and Medium Enterprise (SMEs) are the backbone of all economies and a key source of economic growth.
The important contribution of SMEs in Malaysia’s economy, employment and industrialization has been well
documented. Although their role in the economy is substantial, many SMEs are facing difficulties to access to
financing, human capital, technology and market. Given that there are an issue to finance this is one of the main
reasons for the inability of SMEs to sustain their business. Henceforth, it is important that this challenge is to be
explored in depth. One of the main reasons why banking and financial institutions are reluctant to disburse funds
to the SMEs is due to lack of collateral and good track record of the company. With this scenario in place, they
are left with limited financing choices. The objective of the study is to examine as to whether the character (or
management’s knowledge of business) of having collateral and also the capacity of borrowing by the SMEs,
which is measured by default in loan shown by CCRIS report (Central Credit Reference Information System),
will have an influence on the loan approved by the bank officers. A 2 x 2 x 3 experimental within subject design
was used in the study. This resulted in 12 cases to be answered by each respondent. Questionnaires were sent to
bank managers and officers located in the northern region of Peninsular Malaysia (with centralized business
centers) for respective loan applications. 63 bank officers participated in the study. Findings showed that all the
three variables had significant effect on the likelihood of the loan approval by the financial institutions from the
perspective of credit officers. SMEs should be better prepared when applying for loan with getting the collateral,
good relationship with financial institution and having a good financial record. On the other hand government
agencies assisting SMEs should educate them to ensure that they are equipped with the knowledge to prepare the
required documentations required by the financial institutions.
