Abstract: Globally, Small and Medium Enterprises (SMEs) are considered to be financially stressed. According to SME Development Authority (SMEDA) financial stress causes 80-90% of Pakistani startups to fail within 4 years. This study examines the under-investigated area of SMEs failure rate triggered by financial stress. It is based on primary data obtained from responses of 433 SMEs randomly selected from market committees lists. The study found that ninety per cent of the surveyed entrepreneurs obtain finances from up to four Rotating Savings and Credit Associations (ROSCAs) each. Respondents consider issues like defaulted customers, competition and electricity to be more impacting than lack of access to finance. High failure rate is not detectable in any age group. Islamic and commercial banks can consider these findings and develop innovative instruments that emulate ROSCA financing. This will help increase their share in this market.