Evaluation of Funding Sources Efficiency for Small-scale Real Estate Developers in the Bangkok Metropolitan Area

Abstract

The economy of Thailand is significantly driven by small and medium-sized enterprises (SMEs), particularly in the real estate sector. This study explores the resilience and adaptability of SMEs in challenging economic scenarios, such as the global financial uncertainty following the COVID-19 pandemic. It focuses on the financial management and planning capabilities crucial for the survival of these businesses, especially in terms of capital management. The research encompasses a sample of 508 small real estate companies, analyzing their financial statements from 2018 to 2022.

Findings indicate that 1) the majority (72%) of small companies in Bangkok and its vicinity earned less than 11 million baht in 2022, 2) the average registered capital remained stable at about 90 million baht per company in 2022, 3) small real estate firms have been experiencing operational challenges with increasing cumulative losses from 2018, peaking between 2020 and 2022, 4) the average debt of these companies was around 94 million baht per company in 2022, showing an upward trend, 5) in 2022, small real estate companies predominantly opted for debt financing over equity, 6) total revenues have trended downwards since the onset of the COVID-19 crisis, averaging 10 million baht per company in 2022 and 7) there has been a decreasing trend in net losses since 2021.

The study revealed that small real estate companies are likely to maintain their operational capital levels; if previous years were unprofitable, they might increase their capital the following year and vice versa. Debt was the primary source of financing adjusted first. Additionally, the research recommends that entrepreneurs utilize both equity and debt financing to maximize the benefits of each. It is crucial to sequence the use of these financing sources appropriately according to the company’s revenue. Initially, companies should opt for equity financing to avoid interest burdens. Subsequently, they can leverage debt financing to spur growth once they have sufficient revenue to cover potential interest expenses. This research can aid entrepreneurs in planning and selecting financing sources and inform financial institutions and governmental bodies about how to better support and develop SME efficiency.