External Versus Internal Funding: Entrepreneurial Competencies as a Mediator of Financing Strategies for Informal Economy SMEs

The research on small and medium enterprises (SMEs)Small and medium enterprises (SMEs) financingInternal funding, especially from the developing economy context, remains scantily discussed in the literature. Our study is based on the institutional theory to investigate the moderating influence of entrepreneurial competencies on SMEs’ financingSmall and medium enterprises (SMEs)financing and the business performance of SMEs in Nigeria. The study gathered data from 233 owner-managers of SMEs in Nigeria’s informal economy. We adopted the SEM-PLS to test the direct and indirect relationships between financing strategies, entrepreneurial competencies, and SME performanceSmall and medium enterprises (SMEs)performance. The results showed that bank loans and government grants directly link SMEs’ performance. We also found the mediating role of entrepreneurial competenciesEntrepreneur/entrepreneurialcompetencies on the relationship between personal savings and SME performance. We provided theoretical and practical insights that enhance the roles of formal and informal institutions to support SME financing.