Advisors for micro-entrepreneurs: is one as good as another in accessing alternative finance?

Using a novel large database of Italian micro-entrepreneurs, we investigate how different sources of external business advice affect access to alternative finance. We distinguish three categories of external business advice: professional financial, professional non-financial, and non-professional. We also test whether financial knowledge of micro-entrepreneurs enhances their advice seeking for financial decision-making. We find that the use of alternative financial instruments increases when external business advisors are used, but some are more useful than others. Only professional financial advice is shown to increase the probability of accessing alternative finance by micro-enterprises, while non-professional and professional non-financial advice does not have the same effect. We also find that being more financially literate increases the probability that micro-entrepreneurs seek advice from highly professional sources, i.e., objective financial knowledge helps shape the quality of financial advice requested. Do external business advisors help micro-entrepreneurs access alternative finance? Yes, they do. But only if they are professional financial advisors. Focusing on Italy, where 90-95% of all SMEs are micro-SME, as in the most of EU-27 Member States, our paper demonstrates that the source of advice matters to access alternative finance. We distinguish three categories of external business advice: professional financial (financial intermediaries and external financial consultants), professional non-financial (external accountants and public institutions), and non-professional (relatives, friends, and business partners). Only professional financial advisors increase the probability of using alternative financial instruments by micro-enterprises, while non-professional and professional non-financial advisors do not. This implies that micro-entrepreneurs, to diversify their sources of funding, should overcome their concerns related to the value and expense of specialized financial advisory services and improve their use. Moreover, our paper shows that being more financially literate increases the probability that micro-entrepreneurs seek advice from highly professional sources. From a policy perspective, this implies that governments should encourage and support the use of business professional financial advisors among micro-entrepreneurs, both directly by giving tax advantages to financial advisory services, and indirectly by strengthening financial education programs targeting micro-entrepreneurs.