1. Introduction
Small business firms play an important role in the Indian economy. Small business sector comprises 95% of the
total industrial units in India, accounting for 40% of the total industrial production, 34% of the national exports,
and about 25 million persons of industrial employment (Malepati, 2011, p. 1). Small business firms tend to rely
on debt financing. The decision of debt financing instead of equity financing is usually driven by the needs of
small business firms and the lack of owners' financial resources. In India, the majority of small business services
firms are operated by family members. In the service industry, investment in machinery and equipment is almost
non-existent (Gill, Biger, & Bhutani, 2008) and firms have essentially no tangible assets. Therefore, with no real
assets collaterals small business service firms face financing challenges and tend to rely on family financing,
trade credits, and bank financing.