Abstract:

The sustainability of small and medium-sized enterprises (SMEs) is pivotal in the United Nations (UN) Sustainable Development Goals since they play a significant role in employment and generation of wealth. This question is particularly relevant in Goal 8: Decent Work and Economic Growth.Promoting access to financial services constitutes a specific goal of the UN and ensuring that SMEs have access to finance is important to increase their productivity, which is paramount to economic growth and job creation.

Employment in the Portuguese tourism sector, in 2019, represented 6.5% of the employment in the national economy, and tourism revenues accounted for around 8.5% of Gross Domestic Product.Both have been growing steadily in recent years, before the COVID-19 pandemic.

The main business structure is SMEs, and the tourism sector units are no exception.There were 1,333,649 SMEs, which accounted for 99.90% of the total business companies. Of those companies, 117,971 were from the hotels and restaurants sector.

In most of those companies, the operational management is based on liquidity. However, when they need financing investment projects, SMEs only use internal financing and bank loans. To loan to SMEs, banks look for their future financial and economic profitability.

Following the global pandemic, many companies in this sector have drastically reduced their income, while maintaining the usually fixed costs. Thus, most of the surviving companies will need financing to recover their activity.One of the most common financings is through bank loans. However, it has very high financial costs, along with demanding conditions from the banks.

The liquidity ratio is the most used by SMEs managers, as they generally evaluate their business success with a cash flow approach. This study will use the current liquidity ratio as Current Assets/Current Liabilities, as it is the most common liquidity ratio and it indicates a company's ability to pay its short-term bills.
The economic profitability rate reflects the level of the economic viability of a company.As banks look at the profitability of companies when they apply for bank loans, it will be used the return on assets ratio as Profit / Total Assets.

Considering that it is estimated by the UN that the levels of international tourism are not expected to return to 2019 levels for up to 4 years and the importance of SMEs in southern European tourism, it is vital to understand the challenges that make it difficult for them to access finance or in conditions that do not allow them to be sustainable, maintaining employment and promoting their growth.

Accordingly, this study is justified by the urgent need to support managers' decisions since, in the post-COVID-19 years, decisions must be more precise, to recover from the pandemic period. Thus, the first research question is "Do financial costs depend on the profitability or liquidity of the firm?”. If yes, then the next question is: "Do financial costs depend most on profitability or liquidity?".

The sample considers the period from 2015 to 2019 for Portuguese SMEs in the tourism sector. The financial information, retrieved from the SABI database, will be used to infer the effects of liquidity and profitability on debt through panel data regression analysis.

The results will surely help managers to manage their companies in advance in terms of higher profitability or higher liquidity so that they can later be able to apply for bank loans at a lower cost.

Keywords:

Financing conditions, Interests, Portugal, Small and Medium-Sized Enterprises, SMEs, Hospitality, Tourism, United Nations Agenda for Sustainable Development.