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While some previous research supports the existence of a finance gap within the small and medium enterprise (SME) sector, particularly for female owned SMEs, the evidence is hardly unequivocal. Further, much of the prior research has focused on supply‐ rather than demand‐side issues. Hence, the purpose of this paper is to investigate both supply‐ and demand‐side issues for female and male SME owners.

From the results of three focus groups and a review of the literature eight hypotheses were formulated for testing with a mail survey sent to 534 SME owners.

Based on 123 responses, the findings provide no evidence to suggest that a supply‐side finance gap exists within the Australian SME sector. There is also no evidence that Australian SME owners (particularly female owners) are being discouraged from applying for loans from a financial institution because they believe their application will be rejected. The results suggest that other demand‐side issues (particularly risk‐taking propensity and desire to maintain control) play a more important role in the capital structure decision making of SME owners.

This study's major limitations are its reliance on a sample of solely Western Australian businesses that were not representative of the population of Western Australian SMEs and its relatively small sample size.

Financial advisers need to be sensitive to various demand‐side issues when advising SME owners about the merits of applying for external funding.

This study adds to the limited available evidence concerning the importance of various demand‐side issues to SME owners considering accessing external funding.