Strategies To Obtain Capital For Small Businesses In Maryland

Strategies to obtain capital for small businesses in Maryland


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Strategies to Obtain a Working Capital Line of Credit for Small Businesses


Solomon Atamaya


MS, DeVry University, 2014

BS, Kaplan University, 2012



Doctoral Study Submitted in Partial Fulfillment

of the Requirements for the Degree of

Doctor of Business Administration



Walden University

March 2022






Strategies to Obtain a Working Capital Line of Credit for Small Businesses


Solomon Atamaya


MS, DeVry University, 2014

BS, Kaplan University, 2012



Doctoral Study Submitted in Partial Fulfillment

of the Requirements for the Degree of

Doctor of Business Administration



Walden University

March 2022












SNC Internal Information

SNC Internal Information



Table of Contents

List of Tables iv

List of Figures v

Section 1: Foundation of the Study 1

Background of the Problem 1

Problem Statement 2

Purpose Statement 2

Nature of the Study 3

Research Question 3

Interview Questions 4

Conceptual Framework 4

Operational Definitions 5

Assumptions, Limitations, and Delimitations 5

Assumptions 5

Limitations 6

Delimitations 6

Significance of the Study 7

Contribution to Effective Practice of Business 7

Contribution to Positive Social Change 8

Review of the Professional and Academic Literature 8

Application to the Applied Business Practice 9

Theory of Discouraged Borrowers 10

Alternative Theories for the Theory of Discouraged Borrowers 13

Analysis of Potential Themes 14

Small Businesses 15

Small Business Financing 17

Maryland Small Business Development Financing Authority Programs 22

Credit Strategies 22

Information Symmetry in the Lending Process 27

Audited Financial Statements 28

The State of the Economy at the Time of This Study 28

Transition 31

Section 2: The Project 32

Purpose Statement 32

Role of the Researcher 32

Participants 34

Research Method 36

Research Design 37

Population and Sampling 38

Ethical Research 39

Data Collection Instruments 41

Data Collection Technique 42

Data Organization Technique 45

Data Analysis 45

Reliability and Validity 47

Reliability 47

Validity 47

Transition and Summary 49

References 51

Appendix A: Informed Consent Form 75

Appendix B: Interview Protocol 78

List of Tables

List of Figures

SNC Internal Information

SNC Internal Information


Section 1: Foundation of the Study

Small businesses account for over 50% of all companies in the United States (U.S. Small Business Administration [SBA], 2018), having a positive effect on gross domestic product (Klimczak et al., 2017). Small businesses are an integral part of the economies of both developed and underdeveloped countries (Karadag, 2015); however, small business owners struggle to stay in operation longer than 5 years (SBA, 2018a). In 2013, 406,353 start-up businesses opened; in the same year, however, 46% of businesses closed (SBA, 2018b). A manager’s ability to acquire working capital could affect business continuity and reduce the failure rate (Leroy et al., 2015). Therefore, all business leaders need to have plans to acquire working capital (Lampadarios, 2016). The purpose of this multiple case study is to explore strategies that small business owners use to obtain a working capital line of credit for business continuity.

Background of the Problem

More than 500,000 small businesses constitute 97% of businesses in Maryland and employ more than one million people (SBA, 2018b). In 2014, 4,074 new small businesses started in Maryland, and in the same year, 3,730 closed, marking a large percentage of failed small businesses compared to those opened. External funding is necessary for the sustainability and growth of small businesses (Neagu, 2016). Access to financial resources is essential for business leaders to pay for operating expenses, debts, inventory, and business growth. Many business leaders attribute business failures to external factors, although internal management capabilities and approaches significantly impact business sustainability (Eggers & Lin, 2015). Poor management skills and an inability to access finances are the main reasons for business failure (Lee, 2016). Accordingly, I will explore effective Maryland small business owners’ effective strategies to obtain a working capital line of credit for business continuity for 5 years or longer.

Problem Statement

Insufficient access to funds, including lines of credit, causes 29% of small businesses to fail within the first 5 years of operation (Shabat, 2019). Small business owners encounter challenges obtaining a working capital line of credit (U.S. Federal Reserve Bank, 2017). The general business problem is that some small business owners cannot access working capital lines of credit, which threatens business survival through liquidity shortages, lost customers, and falling profitability. The specific business problem is that some small business owners lack strategies to obtain a working capital line of credit for business continuity.

Purpose Statement

The purpose of this qualitative multiple case study is to explore strategies that small business owners use to obtain a working capital line of credit for business continuity. The proposed study’s population is small business owners in Maryland who have obtained a working capital line of credit for business continuity. Information gleaned from this study will expand understanding of the economic, social, cultural, and structural issues small businesses face in securing working lines of credit. Among the implications for social change are that small business owners may be able to sustain operations, thus providing employment opportunities that could increase the standard of living and contribute to citizens’ well-being in the local communities. Another implication for social change is that sustaining small business operations will allow customers to continue receiving the products and services they need, contributing to their quality of life and the sustainability of their household or business operations.

Nature of the Study

The three research methods are qualitative, quantitative, and mixed methods (Yin, 2017). In a qualitative study, a researcher explores a phenomenon (Glaser & Strauss, 2017); in comparison, a quantitative researcher statistically measures the relationship between variables (Goertzen, 2017). A researcher employs both qualitative and quantitative approaches in mixed methods (Yin, 2017). Because I will not use numerical data to understand the research phenomenon in this study, neither the quantitative nor mixed methods approach is appropriate; therefore, I will use the qualitative methodology with a case study design.

I considered narrative, ethnographic, phenomenological, and case study designs for this qualitative study. Using a narrative design, a researcher obtains individuals’ life stories in a storytelling format (Marshall & Rossman, 2016). The ethnographic design meets the needs for a cultural study of specific groups. In a phenomenological study, participants describe their lived experiences of a phenomenon (Hanson et al., 2011). A case study permits the researcher to capture a real-life phenomenon in a specific setting by asking how and why questions (Cronin, 2014). This type of qualitative design is ideal for the current study because my goal is to explore a research phenomenon in a real-life setting by asking how and why questions to identify common factors.

Research Question

What strategies do small business owners use to obtain a working capital line of credit for business continuity?

Interview Questions

1. What strategies did you use to obtain a working capital line of credit?

2. What are the significant challenges you encountered in securing a working capital line of credit?

3. How did you overcome the challenges you encountered in securing a working capital line of credit?

4. What strategies did you use to develop a successful banking relationship to secure working capital?

5. How, if at all, did you have to modify the initial strategies you used for obtaining a working capital line of credit?

6. What else could you share that is pertinent to the procedures for obtaining credit for your business?

Conceptual Framework

This study’s conceptual framework is the theory of discouraged borrowers (TDB), created in 2003 by Kon and Storey. According to TDB, some small business owners find themselves discouraged from applying for bank financing for three primary reasons: asymmetric information, application costs, and market rates (Kon & Storey, 2003). The idea of credit rationing from banks is one component of business owners’ discouragement, which may prevent them from applying for bank loans. The TDB is applicable to the proposed study because it provides a framework appropriate to explore small business owners seeking to obtain a working capital line of credit for business continuity.

The business environment is becoming faster paced because of economic shifts, globalization, and technological breakthroughs (Guillén et al., 2014). This rapidly changing environment means business leaders must adjust their behavior in adapting to new information and approaches to acquiring credit (Lichtenstein & Plowman, 2009). The TDB provides a conceptual framework to understand why some small business owners face difficulties applying for and obtaining a working capital line of credit for business continuity beyond 5 years.

Operational Definitions

Adaptive leadership: A style of leadership that involves understanding the leadership process, strategizing, and adapting to change across all organizational levels (Reiman et al., 2015).

Cash flow: Net income plus depreciation, amortization, and depletion (Deakin, 1972).

Small business: An entity with fewer than 500 employees (SBA, 2018a).

Working capital: The operating liquidity of a business, which is the difference between current assets and current liability (Nguyen et al., 2016).

Working capital line of credit: A line of credit that provides flexible cash through short-term financing for business continuity and sustainability (Cowton & San-Jose, 2017).

Assumptions, Limitations, and Delimitations


Assumptions are beliefs that a researcher cannot verify but presumes to be true (Marshall & Rossman, 2016). In this study, the first assumption is that a qualitative approach with a multiple case study design will be appropriate for answering the research question. Another assumption is that the participants will provide honest responses to the interview questions. If participants withhold information or misrepresent their experiences, my findings will not be accurate. I also assume that interviews with five small business owners and reviews of their company documents will be sufficient to achieve data saturation, without which I could not have confidence in my results.


Limitations stem from methodology and design issues beyond the researcher’s control (Yin, 2017). One limitation of this study is the use of qualitative methodology because qualitative findings are subjective and dependent upon the researcher’s interpretation (Dennis, 2018). Accordingly, the risk of researcher bias is another limitation. Because of the small sample size and specific qualification criteria, the transferability of qualitative findings may be limited and, therefore, subject to the reader’s opinions regarding applicability to other populations or situations. Qualitative data analysis is another limitation because reliability and validity are dependent on the researcher’s determination of all relevant themes and achieving data saturation.


Delimitations are the boundaries set by a researcher as criteria for participation (Theofanidis & Fountouki, 2019). I limited the scope of the proposed study to exploring the phenomenon of strategies small business owners have used to secure a working capital line of credit for business continuity. Delimitations for participation include owners of manufacturing and wholesale small businesses in Maryland that employ 500 or fewer employees and have been in operation longer than 5 years. Outside the scope of the study are owners of newly created nonregistered businesses not in operation 5 years or longer, not located in Maryland, or employing more than 500 people. There were no delimitations concerning participants’ gender, age, race, or immigration status.

Significance of the Study

Some small businesses fail because of insufficient access to working capital (Liu, 2015). Securing a line of credit could ensure business continuity and growth, resulting in continued advancement opportunities for employees and a more thriving community. The findings of this study may be of value to businesses. First, small business owners can learn of the strategies used by other small business owners to successfully obtain a working capital line of credit, thus ensuring business continuity beyond 5 years. Contributions to positive social change may come from more small business owners maintaining their businesses’ operation, continuing to employ their workers, and economically benefiting the community.

Contribution to Effective Practice of Business

The results of this study can contribute to business practice in at least two ways. First, small business owners may learn about and implement credit acquisition strategies that lead to increased business performance in the long term. Individuals considering opening small businesses could also find these results helpful when creating their business plans and forecasts. The research findings may be valuable to small business owners, banking officials, government agencies, and creditors in understanding the strategies small business leaders use to access credit.

Contribution to Positive Social Change

Small business owners play an important role in facilitating the health of the local economy (Brown, 2018). The community can benefit from the results of this study in many ways. Considering that sustainability is a pathway to a significant competitive advantage, small business owners may be willing to participate in new programs in the community and invest more in their workforce’s well-being. The increase of small businesses operating in the community leads to job creation, poverty reduction, and the potential for a higher standard of living among citizens (Shibia & Barako, 2017). Employees’ families also benefit when individuals prosper in a healthy working environment with increased opportunities for employment.

Review of the Professional and Academic Literature Comment by Natalie Casale: Hi Solomon, still not there. You have 23 ½ pages. You need 25.

Conducting the literature review on the research topic involved accessing various journals and seminal books through the Walden University Library website. Databases searched included ABI/INFORM Complete, ProQuest Central, Emerald Management, Business Source Complete, Academic Research Complete, and SAGE Premier. I also conducted searches through Google Scholar and AOSIS Open Journals. Google Scholar queries provided various interdisciplinary results, including conference proceedings, and AOSIS Open Journals searches returned peer-reviewed scholarly articles from a wide range of academic disciplines. A review of business journals and publications returned research specific to small businesses and small business owners. Government websites, including those of the SBA and the Maryland Chamber of Commerce, provided valuable information on small businesses’ credit strategies and programs.

In searching for relevant literature, I gave preference to peer-reviewed articles published between 2018 and 2021 to obtain current information and findings. Ulrich’s Periodicals Directory was a helpful tool to ensure the selection of peer-reviewed articles. Keywords and combinations of keywords used for the search included small business, business lending, small business lending, small business financing, credit strategies, bank loans, sources of financing, working capital line of credit, small business and financial constraints, small business continuity, capital structure, information asymmetry, and the lending process, small businesses and audited financial statements, small business leadership, the theory of discouraged borrowers, and small business and discouraged borrower. The literature review search produced 142 resources, 137 (85%) of which were peer-reviewed articles published between 2018 and 2021.

I compared the work of different scholars to obtain varied perspectives on the research phenomenon. The first overarching concept, the likelihood of application for and approval of a working capital line of credit, emerged from discussions of the TDB in the context of small businesses. The discussion topics related to the second concept, small businesses, included small business sustainability, small business challenges, and government roles. The concept of small business financing emerged from literature on funding programs, sources of capital, and credit strategies, with a fourth concept of information symmetry in the lending process.

Application to the Applied Business Practice

The purpose of this qualitative multiple case study is to explore strategies that small business owners use to obtain a working capital line of credit for business continuity. The literature review begins with an in-depth exploration of the conceptual framework of the TDB and how researchers have used it in related studies. Other relevant topics discussed are small business financing, credit strategies, information symmetry in the lending process, and audited financial statements.

Theory of Discouraged Borrowers

Despite requiring external financing, many business owners do not apply for credit due to a fear of rejection (Wernli & Dietrich, 2021). Because not all small business owners pursue financing, studies on credit availability are challenging. Levenson and Willard (2000) addressed this fear in laying a foundation for TDB. Subsequently, Kon and Storey (2003) further labeled and explored the TDB.

TDB has become a popular topic of study in recent years (e.g., Bertrand et al., 2021; Bhusal & Wang, 2019; Giang, 2021; Jude & Adamou, 2018; Mol-Gómez-Vázquez et al., 2018, 2019, 2021; Naegels et al., 2021; Qi & Nguyen, 2020; Rostamkalaei et al., 2018; Statnik & Giang, 2019; Wernli & Dietrich, 2021). Wernli and Dietrich (2021) surveyed Swiss SME leaders to examine their ability to access bank loans, finding greater discouragement from credit constraints than turndowns. Among the reasons business leaders gave for being discouraged were high collateral requirements, expectations of rejection, and cumbersome application processes.

Based on the increasing activity of foreign banks in European countries, Mol-Gómez-Vázquez et al. (2019) examined the impacts of foreign banks on borrower discouragement. The study involved analyzing data from SMEs operating in 25 developed and developing countries in Europe. The results showed that financing constraints increased with greater numbers of foreign banks. However, in high-income countries, borrower discouragement tended to decrease or increase less with the presence of foreign banks.

Qi and Nguyen (2020) examined the impacts of government connections on credit access among 30 SMEs in developing countries. Data analysis showed that SMEs with strong government connections were less often discouraged from seeking credit. This finding was interesting, as SMEs with government connections do not receive preferential treatment from banks.

Rostamkalaei et al. (2018) explored the causes of borrower discouragement, specifically the role of informal rejection in discouraging borrowers. The researchers found that informal turndowns discouraged SMEs from seeking credit. Additionally, SME leaders’ judgment often discouraged them from seeking credit. Another finding was that leaders of established firms relied more on informal talks with lending institutions instead of letting personal judgments discourage them.

Banking systems play a role in SME financing. Mol-Gómez-Vázquez et al. (2021) examined the influences of the European banking system stability on discouraged borrowers. The multilevel study took place between 2011 and 2018 and involved 16,342 firms. The findings showed that SME leaders in countries with more stable banking systems were less likely to be discouraged than those with less stable banking systems. Mol-Gómez-Vázquez et al. (2018) also explored the effect of bank market power on borrower discouragement with 2,582 firms in 25 developed European countries. Data analysis showed a reduced intensity of borrower discouragement with the level of bank market power.

Additional influences over bank lending come from gender and gendered language. Using World Bank Enterprise Survey data from 32,955 firms across 56 countries, Bertrand et al. (2021) examined the impact of gendered language on borrower discouragement. Guiding their research was the view that female entrepreneurs have less access to credit than their male counterparts. Based on the findings, Bertrand et al. concluded that gendered language discouraged female entrepreneurs from applying for credit. Naegels et al. (2021) examined the process of discouraged female borrowers through interviews with female entrepreneurs in Tanzania. The findings showed that women held negative views of loan applications, payback procedures, and funding allocation. Further, negative views of loans led to unfavorable attitudes toward them, discouraging individuals from applying.

Information-sharing also affects borrowers’ confidence or resistance in applying for small business financing. Giang (2021) explored the effectiveness of information-sharing in addressing the issue of discouraged borrowers. Data for the study were from two World Bank sources, the Enterprise Survey and the Doing Business publication. Data analysis showed that information-sharing through private credit bureaus discouraged individuals from applying for credit when its coverage was low. However, bank loan demand grew with sufficient levels of information-sharing.

Although Statnik and Giang (2019) also explored the issue of discouraged borrowers, they focused on the role of corruption in discouraging applicants. From an analysis of World Bank Enterprise Survey data, the researchers found that a country’s level of corruption affected individuals’ ability to apply for loans. According to Statnik and Giang, the number of discouraged borrowers increased as corruption grew.

Business leaders’ beliefs and actions affect their likelihood of loan application. Jude and Adamou (2018) suggested that small business owners’ behaviors had the greatest influence on their decision to apply for bank loans and working capital lines of credit. The researchers found that in addition to control aversion and overconfidence, discouragement heavily influenced whether a business owner would apply for bank financing. Bhusal and Wang (2019) attributed borrower discouragement to three determinants: the perceived cost of financing, the small business owner’s history with financing, and the would-be applicant’s fear of prejudice.

Alternative Theories for the Theory of Discouraged Borrowers

The TDB (Kon & Storey, 2003) was the most applicable theory for the proposed study, with other concepts only peripherally related. The alternative theories I considered were the credit theory of money and the theory of financial management.

Credit Theory of Money

The earliest published credit theory was Innes’s (1914) credit theory of money. Innes’s assertion was that money was the only capital that mattered, which directly applies to small businesses needing a working capital line of credit. Innes identified a subtheory to explain a business owner’s satisfaction with the lending process and subsequent ability to repay the loan; however, the author did not address factors affecting business owners’ success in achieving loans. Because Innes’s credit theory of money pertained only to the lending and repayment of business loans and not the strategies used to obtain the loan, it was not appropriate for this study.

Theory of Financial Management

Ang (1991, 1992) proposed a theory peripherally related to the focus of this study. Applied to small businesses, the theory of financial management centered on business failures due to a lack of financing options (Ang, 1991). Ang (1991) wavered in theoretical focus, first introducing the loosely termed theory of modern corporate finance, which applied to businesses of any size. Ultimately, Ang (1991, 1992) conceded that identifying a single theory specific to small businesses’ capital structure was not possible. Ang (1992) explored the difficulty faced by small business owners in securing funding for continued operation. After asserting that no single finance theory fully addressed small businesses’ unique needs, the scholar differentiated between large and small businesses, finding the latter’s success aligned closely with the business owner’s reputation and relationships with lenders. The theory of financial management is related to restricted financing options and organizational failure for businesses of any size. Because the theory does not apply specifically to small business owners and the strategies used to obtain financing for continued operation, it was also wrong for this study.

Analysis of Potential Themes

Thematic analysis is a widely used qualitative data analysis method in many fields, including health care, psychology, and sports (Khokhar et al., 2020; Xu & Zammit, 2020). With thematic analysis, researchers look for repeated meaning across a given data set (Xu & Zammit, 2020), identifying and organizing relevant themes and subthemes, and then using the themes for analysis (Labra et al., 2020). Thematic analysis occurs systematically (Khokhar et al., 2020; Labra et al., 2020) through six phases: familiarization with collected data, generating initial codes, searching for themes, reviewing themes, defining and naming themes, and presenting and discussion results (Labra et al., 2020). Although distinct, the phases overlap and interact and thus do not occur sequentially.

Small Businesses

Small businesses—defined as companies with fewer than 500 employees (SBA, 2018b)—play an essential role in economic growth (Ahmad et al., 2020; Malesios et al., 2021). In 2013, 28 million small businesses accounted for over 99.9% of all businesses in the United States (SBA, 2018b). Small businesses have a positive effect on the gross domestic product (Malesios et al., 2021; Woźniak et al., 2019). Additionally, small businesses help address the issue of unemployment in the economy, thus playing a social role.

In the United States, small business leaders struggle to sustain their business longer than 5 years (SBA, 2018a). In 2013, 406,353 start-up businesses appeared, and 400,687 others dissolved, showing a narrow gap between the openings and closings of prior years. One factor that plays a critical role in small business failure is finance. Access to capital enables small businesses to achieve their potential (Organization for Economic Co-operation and Development [OECD], 2020). Like other organizations, small businesses require access to both working and investment capital. As their names suggest, working capital is required for the daily operation of small businesses, whereas investment capital is necessary for investment. However, small businesses are at a disadvantage in accessing finance due to limited credit history, insufficient collateral, and a lack of business planning expertise. According to Mazzarol and Reboud (2019), inadequate working capital contributes to the failure of small business start-ups, which require funds during the initial years of operation for paying creditors, taxes, wages, and overhead costs.

Small Business Sustainability

Sustainability concerns the environment, work requirements, human rights, business ethics, anticorruption, diversity, and gender equality (Tsvetkova et al., 2020). The issue of sustainability has been gaining traction since the 1970s (Burlea-Schiopoiu & Mihai, 2019) in recognition of the impacts that businesses have on the environment and society (Sarango-Lalangui et al., 2018; Tsvetkova et al., 2020). Since its introduction, the concept of sustainability has evolved to include attributes such as bio/green innovation and environmental issues (Burlea-Schiopoiu & Mihai, 2019). Sustainability has become a goal ingrained in businesses’ strategic missions and visions as a corporate social responsibility.

Sustainability is also important for small businesses. According to Sarango-Lalangui et al. (2018), small businesses, like their medium-sized and larger counterparts, can significantly impact their immediate environments. Small business sustainability allows them to …


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