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Over the years researchers and policy-makers have been discussing potential financial problems facing small businesses. It has been argued that small businesses face severe problems in attracting external long-term capital from traditional institutional sources, such as banks and venture capital companies. This situation has been regarded as the financial gap facing small businesses. Researchers and policy-makers seem to have assumed that this gap is due to a lack of supply, and a large number of researchers have been examining the provision of financial sources from, for example, banks and venture capital companies. Also studies starting from the demand side have mainly focused the small business mangers´ acquisition of capital from traditional institutional sources. To conclude, the research undertaken in small business finance has been using a rather narrow definition of the concept of finance referring mainly to the capital as such.

At the same time, empirical studies (see for example Landström & Winborg, 1995) have shown that far from all small business managers experience a need for further capital. Furthermore, we also know that many small business managers are reluctant towards using external capital from the traditional institutional sources. These facts seem to imply that the need for resources in small businesses in many cases is handled in other ways, besides using institutional financial sources. It seems fair to argue that the acquisition of resources needed is the central problem, not to obtain finance from the institutional financial sources per se. In other words, we need to focus more on the demand side and on the resource acquisition process as such in order to really understand the ways capital requirements are handled in small businesses.

In this study we have shown that the acquisition of resources in many cases is dealt with by using what we call financial bootstrapping measures. With financial bootstrapping measures we refer to measures used by small business managers in order to meet the need for resources, without using external long-term capital from banks and/or new owners. The cluster analysis undertaken resulted in the identification of six clusters of bootstrappers, differing fundamentally from each other with respect to the use of bootstrapping measures. Further, independent variables discriminating between the six clusters were isolated in order to get a picture of the typical business in each cluster. On the basis of these pictures the six clusters were labelled: delaying bootstrappers, relationship oriented bootstrappers, subsidy bootstrappers, minimizing bootstrappers, non-bootstrappers and private owner financed bootstrappers.

This study contributes to the area of financial bootstrapping in small businesses, in that it provides a more extensive and balanced empirical description of bootstrapping measures in comparison with earlier research. For example, the results can help us understand differences in the use of bootstrapping measures between categories (clusters) of small businesses. As a contribution to the area of small business finance the study has highlighted the importance of broadening the meaning we give to the concept of finance when discussing how finance is handled in small businesses. We argue that, in order to better understand small business managers´ handling of finance, the resources needed in the (small) business ought to be the point of departure and not the capital. The managers´ use of bootstrapping measures is an example of how the resources needed are in focus rather than the capital as such.

In line with the resource-based theory this study focuses on the resources needed in the business. As we see it, the resource-based theory could be promising in order to help us understand small business finance. However, our study indicates some dimensions in the small business situation that have to be emphasized in the development of a resource-based view on small business finance. First of all, entrepreneurship and small business management are very much about the "creation" of resources, whereas the resource-based theory puts most of the attention on the business´ strategic use of given resources with the aim to achieve a sustainable competitive advantage (Barney, 1991). According to Pfeffer & Salancik (1978) the problem of getting the most out of given resources rather than dealing with the acquisition/creation of resources have occupied most writers within different areas of economics and business administration. Second, in small businesses different resources are more or less integrated (see also Greene et al., 1997). For example, the empirical results of this study indicate that social resources (the network) are used in order to acquire and to create financial and physical resources. In other words, the network is the vehicle by which the small business manager acquires resources from external parties (Johannisson, 1988). The resource-based theory classifies the resources in homogeneous groups of resources such as human, social, organizational, physical, financial and technological resources (Hofer & Schendel, 1978; Greene et al., 1997). In order to develop a resource-based theory for small businesses the groups of resources must be regarded in a more integrated way. To conclude, it can be argued that the resource-based theory must be developed on the basis of characteristics of small businesses in order to help us understand the way resources are handled.

The major implication for policy-making is the conclusion that small business managers seem to handle the need for resources in other ways besides using capital from institutional financial sources. Furthermore, small businesses are not to be regarded as a homogeneous group of businesses. Rather great differences exist between different small businesses in the way the need for resources is handled. Taken together this implies that it can be questioned whether the governmental support provided to small businesses is effective. A better understanding of how financial issues are handled in small businesses could result in other and perhaps more effective financial instruments directed to these businesses.


The authors wish to acknowledge the invaluable statistical advice of assistant professor Helge Helmersson, Lund University, Sweden and the invaluable research assistance of MBA student Karin Lundgren.


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