Why Small Businesses Struggle to Adopt AI: A Financing Problem, Not a Price Problem
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Small and medium-sized enterprises (SMEs) are much slower than large firms to start using artificial intelligence, and the reason usually given is that AI costs too much. This paper argues that the real issue is not the price tag but where small firms sit in the financing order. Using pecking order theory from corporate finance, it explains that small firms depend on their own cash because lenders and investors cannot easily judge how risky they are, so the same purchase that a large firm covers without thinking becomes a financing decision for a small one. The paper reviews seven studies covering SME financing and AI adoption, including research from Lebanon and Jordan. Interestingly, the studies that actually test cost as a variable find it is not significant, while things that need funding, such as infrastructure and training, are. That points to access to capital being the deeper problem. The finding matters for banks, policymakers, and anyone selling AI services to small firms in markets like Lebanon, where credit is hard to get.
Keywords
Ai Adoption, Capital Structure, Lebanon, Pecking Order Theory, Sme Financing