Small- and medium-sized enterprises (SMEs) play an important role in modern business society but still face difficulties in debt financing. Literatures suggest that family involvement and external auditing can assist small firms to mitigate agency problems that impede the access to loans, and the liability of newness could be a factor in small business debt financing. Our research examines how family involvement affects cost of debt upon the different choices on external auditing, and how the liability of newness works. We find when engaging external auditing, family involvement is not a significant influencer in reducing the cost of debt for small businesses. Besides, when the external auditing is not engaged, family involvement becomes a significant influencer. We also find that when external auditing is not engaged, family involvement works in reducing the cost of debt only when the liability of newness is a factor.