Effect of Equity Financing Options on Growth of Small Businesses in Accra Metropolis

Abstract

Equity financing is especially critical for businesses with a high risk-to-reward profile and particularly small businesses. The purpose of this study was to find out the effect of equity financing options, specifically internal and external equity, on small business growth in the Accra metropolis. This study used an explanatory research design. The population of the study was 257 small businesses in the Accra Metropolis registered with the Ghana Enterprise Agency. The statistical tools for analysis were the Statistical Product for Service Solution (version 24) and Smart PLS (version 3). The study's findings revealed that, while both internal and external equity had a significant and positive effect on small business growth, external equity options yet to gain much acceptance. The study was consistent with the pecking order theory, which together with the trade-off and financial growth lifecycle theory, guided the study. The study recommends small businesses owners-managers to make great use of internal equity options to expand their businesses and take advantage of external equity financing options like accelerators, angel investors, crowdfunding and venture capitals because they not only supply funds but also provide advisory services and help professionalize the small businesses, making them more appealing to both internal and external capital sources, while the government develops the enabling environment for more equity providers, particularly private equity providers.