This study examines how business owners (BOs) interpret institutional uncertainty and how such interpretations shape small and medium-sized enterprises’ (SMEs) financing behaviour. Focusing on Brexit in the United Kingdom, it investigates how sensemaking and behavioural mechanisms generate discouragement and self-rationing in accessing external finance.
Adopting a constructive grounded theory approach, the study draws on twenty semi-structured interviews with UK SME owners conducted between December 2021 and January 2023. An abductive analysis was employed to develop a process-based explanation linking institutional uncertainty, entrepreneurial sensemaking, and financing behaviour.
The findings show that institutional uncertainty does not simply constrain credit but reshapes entrepreneurial behaviour through interpretive and structural mechanisms. BOs translate uncertainty into heightened perceived risk, leading to precautionary sensemaking and consequent self-rationing even where credit remains available. Discouragement emerged as a multi-mechanistic process shaped by anticipated rejection, vicarious experiences, procedural burden, higher costs, imposter-related doubt, and perceived discrimination. Gender differences under uncertainty are not uniform in magnitude but mechanism-specific, with women experiencing stronger relational and identity-based barriers and men exhibiting more mindset-driven conservatism. Fintech-enabled lending mitigates discouragement by reducing relational and procedural barriers.
This study extends discouragement theory by conceptualising it as an emergent and dynamic process of sensemaking under institutional uncertainty. It further integrates sensemaking and behavioural finance to offer a behavioural explanation for credit market disengagement. Additionally, it extends pecking order theory by identifying a behaviourally constructed pecking order, where sensemaking and self-rationing emerge endogenously through cognitive, social and identity-based mechanisms.
