International Journal of Management and Economics Fundamental
56
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VOLUME
Vol.05 Issue02 2025
PAGE NO.
56-64
10.37547/ijmef/Volume05Issue02-12
Formation of financial resources from external sources
for small business entities in the conditions of new
Uzbekistan economy: problems and solutions
Kuchkarov Bakhtiyor Khoshimjanovich
Independent researcher, Namangan State Technical University, Uzbekistan
Received:
24 December 2024;
Accepted:
26 January 2025;
Published:
28 February 2025
Abstract:
This article thoroughly analyzes the issues of forming financial resources for small business entities from
external sources. Small business plays a significant role in the economy of Uzbekistan, accounting for 55-60% of
GDP. The article discusses the problems in their development, particularly the difficulties in obtaining credit,
resource shortages, and bureaucracy. In addition to traditional sources, modern methods such as investment
funds, government grants, and crowdfunding are proposed for forming financial resources. The importance of
improving financial literacy, developing cooperation with external sources, and utilizing government programs is
emphasized. Furthermore, the "Robotic Financial Assistant" program is suggested to help small businesses analyze
financial data and obtain loans. The article presents important solutions that can stimulate the development of
small businesses and lead to positive changes in the economy.
Keywords:
Small business, financial resources, external sources, credit acquisition, investment, grants, financial
literacy, robotic assistant.
Introduction:
Small business is one of the important
components of Uzbekistan's economy, and its impact
on the country's economic landscape is significant.
Currently, small businesses account for 55-60% of
Uzbekistan's
GDP,
clearly
demonstrating
the
importance of this sector. The primary tasks of small
businesses include creating jobs, fostering economic
development, providing local products and services,
implementing
innovations,
and
increasing
competitiveness. This sector plays a crucial role in
developing the local economy, enhancing economic
activity, and stimulating overall economic growth in the
country. Active participation in the production of local
products and the provision of services reduces the
need for imports. Small businesses are actively involved
in implementing innovations and creating new
products, thereby increasing job opportunities and
invigorating the market.[3] Additionally, small
businesses contribute to ensuring social and economic
stability within the local community and strengthen
local economic structures. For this reason, small
business is considered one of the main pillars of
Uzbekistan's economy, and its development positively
impacts the country's social and economic progress. [5]
Today, there are over 523,000 small business entities
operating in our country. (Table 1) Each year, more
than 86,000 new entrepreneurial entities are
established, leading to an increase in the number of
businesses. However, the number of entities that have
ceased operations or terminated their activities is also
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rising. Several factors may contribute to this, such as
financial issues, competition, economic conditions,
demand for products and services, management
problems, and technological changes.
Table 1
Regional Demography of Small Business Entities in Uzbekistan [19]
No
Region Name
Number
of Newly
Establish
ed
Number of
Active
Entities
Number of
Inactive
Entities
Numbe
r of
Termin
ated
Entities
Total Share
of Active
Entities in
Regions
(Percentage
)
Republic of Uzbekistan
86 030
523 556
32 415
30 229
100.00%
Of which in regions:
1
Republic of Karakalpakstan
6 247
22 863
1 143
1 851
4.40%
2
Andijan Region
4 185
39 038
3 128
1 621
7.50%
3
Bukhara Region
5 633
30 082
2 073
2 341
5.70%
4
Jizzakh Region
4 424
22 474
1 777
1 856
4.30%
5
Kashkadarya Region
5 922
36 421
2 564
3 108
7.00%
6
Navoi Region
3 796
22 844
1 153
1 848
4.40%
7
Namangan Region
4 636
32 305
1 293
2 405
6.20%
8
Samarkand Region
7 570
47 943
3 082
3 751
9.20%
9
Surkhandarya Region
3 804
27 368
1 557
1 710
5.20%
10
Syrdarya Region
2 203
15 036
1 172
639
2.90%
11
Tashkent Region
6 940
49 145
4 816
1 538
9.40%
12
Fergana Region
8 036
46 350
2 682
2 260
8.90%
13
Khorezm Region
6 347
25 616
1 891
2 225
4.90%
14
Tashkent City
16 287
106 071
4 084
3 076
20.30%
From the data in Table 1, it can be seen that nearly
11.9% of all small business and private entrepreneurial
entities are terminating their activities or have
suspended operations due to various problems. As
noted above, various economic scholars have
thoroughly studied the existing issues affecting the
effective continuation of entrepreneurial activities and
conducted scientific research addressing their
resolution. In this article, we aim to explore the issues
related to forming financial resources for small
business entities from external sources and managing
them effectively.
Every business entity primarily aims to establish
operations and manage them efficiently to achieve
high income (profit). To achieve this goal, they select a
solid business plan and implementation strategies.
However, to implement these projects, entrepreneurs
require financial resources. There are two traditional
sources for forming financial resources. These include
internal sources, meaning the entrepreneur's own
funds, and external sources, which consist of financial
institutions, the state, investors, and other external
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sources of financial resources. The effective utilization
of financial resources and external sources for small
business entities is considered a fundamental pillar of
economic development.[6] Therefore, research on this
topic is of significant importance for enhancing the
efficiency of small businesses and ensuring economic
stability. We will discuss in detail the formation of
financial resources for small business entities from
external sources.
Literature Review
The content and essence of the financial resources of
small business entities, as well as their formation and
management, have been thoroughly studied by various
economists. The financial resources of entrepreneurial
activities, working capital, the socio-economic essence
of entities, and the sources related to their capital
formation have been extensively examined in the
works of A. Smith, A. Turgot, P. Samuelson, R. Hisrich,
and I. Schumpeter. Scholars from CIS countries, such as
A.I. Arkhipov, E.F. Borisov, A.V. Busigin, Yu.M. Osipova,
M.A. Sazhina, and others, have researched the
theoretical and practical problems of financial
resources in entrepreneurial activities, their formation,
and development.[1]
Additionally, Uzbek scholars, including S.S. Ghulomov,
Sh.Sh. Shodmonov, T.T. Jorayev, A.V. Vakhobov, H.P.
Abulkasymov, A. Qodirov, Q. Muftaydinov, N.K.
Murodova, G.P. Sharipov, M.Yu. Abdulkariimova, and
others, have contributed to the development of
entrepreneurship through their scientific research on
the theoretical aspects and unique characteristics of
working capital in Uzbekistan.[6]
METHODOLOGY
This research thoroughly analyzes the issues related to
the formation of financial resources for small business
entities from external sources. The primary aim of the
study is to identify the problems associated with
forming financial resources from external sources and
managing them effectively for small businesses, as well
as to propose solutions. For the research, statistical
data, scientific articles, studies, business plans, and
financial reports will be utilized. The statistical data is
sourced from the State Statistics Committee of the
Republic of Uzbekistan, while the literature review
encompasses existing scientific studies on the
formation of financial resources.
The research employs survey methods, analytical
methods, and comparative analysis methods. The
survey method will be used to collect data from small
business owners and entrepreneurs, while the
analytical method will involve analyzing financial data
using statistical methods. The comparative analysis
method will be applied to compare financial resources
obtained from various sources and to determine their
effectiveness. The process of summarizing and
analyzing research results, identifying problems, and
proposing solutions will lead to the main conclusions of
the study. In the conclusions phase, insights will be
derived regarding the problems and solutions related
to the formation of financial resources for small
businesses.
The ultimate goal of the research is to provide
recommendations for effectively managing financial
resources, developing cooperation with external
sources, and enhancing financial literacy among small
businesses. This methodology has been designed to
ensure the effectiveness of the research and to achieve
precise conclusions.
Discussion of Key Findings
Small business entities utilize various methods to form
financial resources from external sources. Among these
methods are investment funds, bank loans,
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International Journal of Management and Economics Fundamental (ISSN: 2771-2257)
government grants, and other sources. The use of
external sources allows businesses to reduce financial
risks and enables effective resource allocation. [8]
The issue of financial resources for small businesses
and the use of external sources is becoming
increasingly relevant in the context of globalization and
competitive environments. Today, businesses must
learn to effectively develop and manage financial
resources to operate successfully in both local and
international markets. A lack of financial resources
diminishes the competitiveness of small business
entities and serves as an obstacle to their sustainable
development. Below, we will specifically examine the
external sources of financial resources for small
business entities.
The types of external sources for forming financial
resources are considered one of the key factors for the
effective functioning of small businesses. These include
bank loans, investments, various grants, emissions,
crowdfunding, funds from international financial
institutions, and government subsidies.[6]
Bank loans are considered one of the primary and most
widely used sources of financial resources for small
businesses in our country. Loans provide the necessary
funds for the growth and development of businesses.
Small businesses are required to meet the demands of
banks when applying for loans, which includes
presenting their financial history and providing
guarantees or collateral. Typically, bank loans come
with high interest rates, which can reduce the
profitability of the business.
Funds provided by private investors or venture capital
funds are also a crucial source for the development of
small businesses. Investors aim to achieve their
interests through capital injection into the business,
which helps support its growth. Acquiring investments
allows businesses to implement innovative projects
and introduce new technologies. However, obtaining
investments may also introduce oversight and
demands from investors regarding the business's
operations. [14]
Grants are non-repayable funds provided by
government agencies or international organizations.
They are used to finance social projects and
significantly contribute to the development of
businesses. Obtaining grants often requires extensive
documentation
and
compliance
with
various
requirements; however, the absence of repayment
obligations is crucial for ensuring the financial stability
of businesses.
Small businesses can also raise capital through the
issuance of stocks or bonds. This method helps expand
the financial resources of the business but requires
strict regulation and oversight. Funds raised through
emissions are used to stimulate the development of the
business.
Crowdfunding is a mechanism for collective financing
that allows small amounts of money to be gathered
from many people via online platforms. This creates
new opportunities for small businesses, as it enables
testing business activities and promoting them through
social media. Funds raised through crowdfunding
significantly aid the growth of businesses.[15]
Loans or grants obtained from organizations such as
the World Bank and the International Monetary Fund
(IMF)
provide
significant
assistance
for
the
development of small businesses. These resources are
crucial for stimulating business growth and
strengthening the economy.
Government subsidies are a form of financial assistance
provided through special programs by the state. They
are used to encourage business development, and
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there is no requirement for repayment. Utilizing
subsidies helps enhance the social role and economic
impact of businesses.
The funds attracted from these sources can have both
positive and negative aspects for small business
entities. Below, we have examined these aspects to
identify the advantages and disadvantages of each
source. Based on this analysis, we have developed
optimal recommendations for entrepreneurial entities,
which are included in Table 2.
Table 2
Advantages and disadvantages of funding sources for small business entities
No
Type of
External
Source
Advantages
Disadvantages
Recommendations for Entrepreneurs
1
Bank Loans
• Quick and easy
access.
• Interest payments may
reduce
business
income.
If the annual interest rate on borrowed
funds is around 10-15%, it is considered
safe for the business. The total amount of
the loan should not exceed 30% of the
annual income.
2
Investments
• Funds do not
need to be repaid.
• Requires more control
and management.
Funds obtained from investors with a 20-
30% dividend-free return are considered
safe for business development. The total
investment should not exceed 50% of the
business's total assets.
3
Grants
• Funds do not
need to be repaid.
• There are many
documents
and
requirements to obtain
grants.
Grants are non-repayable, making them a
safe option. They can constitute up to 100%
of the total funding used.
4
Issuance
• Expands capital
and attracts many
investors.
•
Requires
strict
regulation
and
oversight.
Funds raised through shares or bonds at an
interest rate of 15-20% are considered safe
for the financial stability of the business.
The raised capital should not exceed 40% of
the business's total assets.
5
Crowdfunding
• Easy to collect
small amounts of
money.
• Requires time and
resources
to
gather
funds.
Funds raised through crowdfunding at an
interest rate of 5-15% are considered safe
for business development. The total amount
raised should not exceed 20% of the
business's total assets.
6
International
Financial
Institutions
•
Wide-ranging
financial
assistance.
• Strict conditions and
requirements for the
funds received.
Loans provided by international financial
institutions at an interest rate of 5-10% are
considered safe. The total amount should
not exceed 30% of the business's total
assets.
7
Government
Subsidies
• Funds do not
need to be repaid.
•
Extensive
documentation required
to obtain subsidies.
Subsidies are non-repayable, making them
a safe option. They can constitute up to 50%
of the total business expenses.
In our research to study the sources of financial
resource formation for entrepreneurial entities in the
Namangan region, we collected statistical data, which
revealed that entrepreneurial entities primarily form
their financial resources through their own funds, bank
loans, foreign investment funds, and other non-
repayable assistance.
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Table 3
Sources of Working Capital Formation for Small Business Entities in Namangan Region (in
million soms)
№
Indicator Name
Years
2019y
2020y.
2021y.
2022y.
2023y.
1 Government funds
-
-
-
-
-
2 Borrowed funds (bank loans)
1344,3
1545,5
2703,8
2638,3
2114,2
3 Borrowed funds (bank loans)
1220,9
1262,7
1431,4
1477,6
2008,3
4 Foreign investments
2229,5
2987,7
2295,8
2381,5
3995,4
5 Other non-repayable assistance
60
733,4
14,1
682,3
1021,2
6 Other sources
39,8
7,3
2,0
11,5
1110,2
It appears that small business entities are not
interested in forming financial resources from sources
such as government grants, state funds, and
crowdfunding.
Forming financial resources from external sources is
not always easy. There are several objective and
subjective issues involved. Among the problems faced
by small business entities in forming financial resources
from external sources are difficulties in obtaining loans,
lack of resources, bureaucracy, improper forms of
credit policy, the conditions and requirements of
external sources, the impact of economic and political
stability, and the inefficiency of business models.
Small businesses encounter difficulties in obtaining
necessary funds from banks or financial institutions.
Banks assess the client's financial history, guarantees,
or collateral, and the development of the business
when granting loans. Small businesses often cannot
meet the requirements necessary for obtaining loans,
such as lacking sufficient financial history or credit
ratings. Banks are cautious when setting interest rates
and repayment terms, which increases the financial
pressure on small businesses.
The lack of financial data is also a significant issue for
small businesses. Often, businesses cannot accurately
assess their financial situation due to insufficient
financial reports, statistics, and forecasts. This situation
leads to distrust from banks or investors, resulting in
decreased opportunities for obtaining loans or
attracting investments. The lack of financial data
obstructs businesses' effective management of
financial resources.
Loans or investments obtained from external financial
sources often come with strict conditions and
requirements. Banks and investors may require
monitoring of the business's progress and adherence to
contract terms. These demands can restrict small
businesses' operations, reduce flexibility, and limit
creative opportunities. The requirements for obtaining
grants and subsidies can also hinder businesses' ability
to manage resources adequately.
The impact of economic and political stability is
particularly significant for small businesses. If there is
economic instability, inflation, or political uncertainty
in the country, this can reduce the demand for financial
resources from businesses. Banks and investors may be
cautious in lending due to distrust in economic stability.
Political processes, such as tax policies or funding
programs, can also create challenges for small
businesses in accessing external resources.
At the same time, it is crucial for small businesses to
improve financial literacy, utilize qualified consultants,
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and take advantage of assistance programs provided by
the government to address the problems of obtaining
financial resources. Effective financial management
and strategic planning are necessary tools for small
businesses to solve issues related to acquiring and
utilizing specialized resources. Addressing these
problems plays an important role in promoting the
development of small businesses and contributing to
economic stability.[15]
Small business entities face numerous challenges when
obtaining financial resources. Several effective
solutions exist to address these problems, with the
main ones including improving financial literacy,
developing cooperation with external sources, and
leveraging government programs and incentives.
First and foremost
, improving financial literacy is of
great importance. Financial knowledge and skills are a
key factor in the success of small businesses. Enhancing
business owners' financial literacy improves their
ability to manage financial resources effectively and
engage in strategic planning. To achieve this, it is
necessary to organize training sessions, seminars, and
webinars. Improving financial literacy also enhances
the ability of businesses to collaborate effectively with
banks, investors, and other financial sources.
Therefore, maintaining proper accounting and financial
reporting plays a crucial role in accurately assessing the
financial situation of the business.
The second solution
is to develop cooperation with
external sources. Small businesses need to establish
close and effective partnerships with banks, venture
capital funds, investors, and grant-giving organizations.
Providing clear and reliable information in business
plans is essential for developing this cooperation.
Collaborating with external sources not only helps
businesses attract financial resources but also assists in
introducing new opportunities and innovations.
The third solution
is to utilize government programs
and incentives. The assistance programs, grants, and
subsidies provided by the government are vital for the
development of small businesses. Businesses need to
be informed about the changing government programs
and
incentives
and
prepare
the
necessary
documentation to benefit from them. This significantly
impacts the financial stability and development of
businesses.
To resolve the issues faced by small business entities in
obtaining financial resources, it is crucial to improve
financial literacy, develop cooperation with external
sources, and utilize government programs and
incentives. Implementing these solutions is essential
for ensuring the effective operation of businesses,
promoting economic stability, and contributing to
social development. Effective management of small
businesses and proper handling of financial resources
will ensure their development and help them
participate successfully in the economy.
Additionally, we propose utilizing modern innovative
methods to address the problems that small business
entities encounter when forming financial resources
from external sources. This involves implementing a
"Robotic Financial Assistant" program. In this era of
rapid advancement in artificial intelligence across all
sectors, we believe that this program will assist small
business entities in analyzing financial data, providing
advice on loans and investments, and developing
financial strategies.
The main functions of the program include financial
analysis, loan proposals, and investment suggestions. It
enables automatic analysis of the business's financial
status, preparation of reports, and assistance to the
business owner in making financial decisions. Based on
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International Journal of Management and Economics Fundamental (ISSN: 2771-2257)
the business's financial data, the program presents the
best offers for obtaining loans from banks and financial
institutions and helps identify optimal investment
options for small businesses. Business owners can
interact with the program, asking questions to enhance
their financial literacy, testing financial scenarios, and
monitoring results in real-time. This also allows
businesses to integrate with social media platforms.
Furthermore, the program analyzes macroeconomic
indicators, helping businesses make strategic decisions
based on the economic and political environment.
The "Robotic Financial Assistant" program simplifies
access to government programs and grants,
significantly aiding small businesses in obtaining
financial resources. This program can be offered
through financial technology companies or startups on
the internet, tailored to various platforms and user
requirements. Such programs are often available for
use through websites, mobile applications, or software.
They can also be developed by universities and
research centers.
Thus, the "Robotic Financial Assistant" program could
be a revolutionary solution for small businesses
addressing the challenges of obtaining financial
resources. This innovative approach will significantly
impact enhancing financial literacy, ensuring economic
stability, and developing effective collaboration with
external sources. For small businesses, this program
will facilitate the process of acquiring financial
resources and support their development, leading to
positive changes in the economy.
CONCLUSION
In conclusion, small business entities are an essential
component of Uzbekistan's economy, and their
development is crucial for ensuring the country's social
and economic stability. Facing a range of challenges in
forming financial resources from external sources,
recommendations have been made to improve
financial literacy, develop effective cooperation with
external sources, and utilize government programs and
incentives as solutions. The "Robotic Financial
Assistant" program will assist small businesses in
analyzing financial data and obtaining loans and
investments. This innovative approach is vital for
simplifying the process of acquiring financial resources,
ensuring economic stability, and promoting social
development. Effective management of small
businesses and proper handling of financial resources
will ensure their development and help them succeed
in the economy. Addressing these challenges will
promote the growth of small businesses and yield
positive outcomes for the national economy.
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