TITLE:
Financing Choices in Time of Crisis: Trade Credit and Bank Loan in Thailand’s SMEs Amidst Pandemic Recession
AUTHORS:
Kunlaporn Srikheelek
KEYWORDS:
Trade credit, Bank Loan, Small and Medium Enterprises, Pandemic Recession
JOURNAL NAME:
Open Journal of Business and Management,
Vol.12 No.3,
May
14,
2024
ABSTRACT: After the Great Recession of 2008, the world is experiencing another major recession in 2020. This recession is primarily caused by the global impact of the COVID-19 pandemic, leading to widespread economic downturns. This has a significant impact not only on individuals but also on small and medium-sized enterprises (SMEs). Many small and medium-sized enterprises are facing unprecedented challenges, such as reduced consumer demand and disrupted supply chains, resulting in financial constraints. It is crucial for SMEs to adapt quickly and seek financial assistance. This paper investigates how SMEs in Thailand made financing decisions between two major funding sources: trade credit and bank loans. The result has shown that there is a substitute relationship between trade credit and bank loans. Additionally, these results suggest that SMEs in Thailand tend to prioritise trade credit over bank loans when profitability is high. Moreover, the collateral has a positive correlation with the use of bank loans in SMEs, in contrast with the cash holding level, which has a significantly negative correlation with the use of bank loans. Finally, younger firms may face more challenges in accessing both traditional bank financing and trade credit from suppliers compared to established businesses. Overall, the study suggests that various factors such as profitability, collateral, and cash holding levels play a significant role in determining SMEs’ financing decisions. Understanding these relationships can help businesses make more informed choices when seeking funding.