Financing innovation in SMEs: a systematic review of financing channels

Purpose The purpose of this paper is to present a systematic review of the literature on financing channels for innovation in small and medium-sized enterprises (SMEs). The review aims to provide a comprehensive understanding of these channels, examining their characteristics, relationships and, most importantly, identifying which channels effectively drive innovation and which may not be as relevant. By doing so, the study seeks to highlight the key factors that contribute to the successful financing of innovation in SMEs and to identify potential gaps and opportunities for future research. Design/methodology/approachA systematic literature review was conducted following Preferred Reporting Items for Systematic Reviews and Meta-Analysis guidelines, analyzing studies published up to August 2024 in both English and Spanish. This approach ensures a thorough examination of both traditional and emerging financing channels, their interplay and their influence on innovation within SMEs. Findings The review uncovers the diverse roles that different financing channels play in supporting innovation in SMEs. While traditional channels like bank credits are critical, their effectiveness is influenced by factors such as technological capacity and market competition. Emerging channels, including crowdfunding and technology bonds, show potential but require further research to understand their full impact. In addition, the study reveals significant geographic and sectoral disparities, with certain regions and sectors being underrepresented in the existing literature. Research limitations/implications The review is limited to articles published until August 2024 and primarily focuses on sources in English and Spanish. Future research should explore more diverse linguistic and regional contexts, particularly in underexplored regions such as Latin America and Africa, to gain a fuller understanding of global financing practices. Practical implications To maximize innovation, SMEs should strategically manage a mix of financing channels based on their specific characteristics and needs. Policymakers and financial institutions are encouraged to develop tailored financial products that cater to the unique requirements of SMEs, considering both traditional and emerging financing options. Originality/value This review contributes to the literature by not only mapping out the various financing channels for SMEs but also critically assessing their effectiveness in driving innovation. It highlights which channels are most beneficial and under what circumstances, offering actionable insights for SMEs, policymakers and financial institutions.