Accessibility of Business Loans for Small and Medium Scale Enterprise in Nigeria

CHAPTER ONE

INTRODUCTION

 Background of the study

Small and medium firms, often known as SMEs, provide a significant contribution to the economic growth and vitality of most countries across the world, particularly those in emerging nations (Quartey, Turkson, & Iddrisu, 2017). The small and medium-sized businesses (SMEs) of Nigeria are the primary engines of entrepreneurial innovation, economic expansion, and employment creation (World Bank, 2017). Small and medium-sized businesses (SMEs) are important contributors to job possibilities, wealth growth, the reduction of poverty, and income production (Obi et al., 2018). Small and medium-sized businesses (SMEs) make a substantial contribution to the growth and development of any nation’s economy. In addition to lowering poverty and increasing job opportunities, SMEs make a significant contribution to the advancement of industry (Menike, 2015).

According to the World Bank (2016), small and medium-sized enterprises are regarded as the economies’ primary source of job creation. Small and medium-sized enterprises (SMEs) face enormous and severe issues around the globe, one of the most famous of which is restricted access to business financing (Aysan, Disli, & Ozturk, 2016).

More than half of all jobs in the globe are provided by small and medium-sized businesses (SMEs), which also contribute to economic growth by lowering unemployment rates and raising standards of living in every nation (Kumar, 2017). According to research conducted by Stouraitis, Mior, Harun, and Kyritsis (2017), the contributions of SMEs to the formation of economies account for fifty percent of the worldwide GDP and sixty percent of international employment.

Moreover, because they employ members of both skilled and unskilled labour forces, SMEs contribute to the improvement of living conditions in their respective nations (Oduntan, 2014). In 2010, small and medium-sized companies (SMEs) accounted for 65% of firms in Nigeria and provided 60% of the country’s job opportunities (iaková & Verner, 2015).

The small and medium-sized businesses (SMEs) of Nigeria are the primary engines of entrepreneurial innovation, economic expansion, and employment creation (World Bank, 2017). The official unemployment rate in Nigeria is very high, however it is thought that the unofficial unemployment rate is substantially higher. Furthermore, the official poverty rate in Nigeria is extremely high (Obi et al., 2018). These statistics are the result of limited natural resources as well as a big trade imbalance.

It has been established that the accessibility of financial resources is one of the most important factors in the development, expansion, and achievement of SMEs (Miracle, 2016). The methods of financing that are utilised by SMEs range from initial internal sources, such as the owner-personal manager’s savings and retained profits, to informal outside sources, such as financial assistance from family and friends, trade credit, venture capital, and angel financiers, and thence to formal external sources, which are represented by financial intermediaries such as banks, financial institutions, and securities markets (Motilewa, Worlu, Ogbari, & Aka, 2015). The financial growth cycle model that was suggested by Nguyen, (2017) suggests that over the many phases of a company’s life cycle, a company’s financial demands as well as the numerous financing choices that are open to small and medium-sized enterprises (SMEs) shift. To put it another way, the company has to implement a distinct finance strategy at each step of the growth cycle it is going through. In general, small and medium-sized enterprises (SMEs) in the start-up phase rely heavily on funding sources that come from within the company. This is due to the distinctive characteristics that characterise SMEs during this phase, such as informational opacity, a lack of trading history, and the high risk of failure (McCarthy, Oliver, & Verreynne, 2017).

When starting a new business, one of the most significant issues to take into consideration is whether or not it will be able to obtain business loans. The majority of small and medium-sized businesses (SMEs) rely on loans from financial institutions as their primary source of funding from outside sources. The capacity to obtain credit is contingent on a wide range of variables that are all connected to the workings of businesses and banks. The size of the business is one of the characteristics that may be regarded as differentiating credit terms. Because of the limited information that is transmitted to banks and the asymmetry of the information, it is difficult for small and medium-sized businesses (SMEs) to acquire financing. However, SMEs are essential to the growth of the economy (Nguyen, 2017). On the other hand, gaining access to business loans will be a lot simpler if a company has a stronger financial position and if there is more information accessible about the business. To put it another way, the role that the smaller businesses play in the economy is analogous to that of a lubricating additive (Lamb, 2016).

Statement of the Problem

The primary barrier to the expansion of businesses in Nigeria is the small and medium-sized enterprises’ (SMEs’) lack of access to business loans (Lamb, 2016). Small and medium-sized businesses (SMEs) make up the majority of Nigeria’s commercial and financial companies, just as they do everywhere else in the globe. Small and medium-sized businesses make up around 68% of all companies in Nigeria (Hussein & Baharudin, 2016). The difficulty of small and medium-sized enterprises (SMEs) to support themselves financially has contributed to Nigeria’s unemployment rate, which has risen over the last decade, as well as the country’s poverty rate, which is more than 20% (iaková & Verner, 2015). The widespread problem in the business world was that there was insufficient access to business loans, which had a detrimental impact on the viability of SMEs and economic growth. The unique issue with Nigerian small and medium-sized enterprises (SMEs) is their inabilities to acquire business loans.

Recent study has focused a significant amount of emphasis on the challenge of providing enough access to business loans for SMEs. This subject is of particular interest to academics.

Objectives of the Study

The primary objective of this study is to examine the accessibility of business loans for small and medium scale enterprise in Nigeria. Specific objectives of this study are:

i.          To determine the extent small and medium scale enterprises access business loans.

ii.        To examine the avenues small and medium scale enterprises can access business loans.

iii.      To examine the factors that affects small and medium scale enterprises access to business loans.

iv.      To find out the challenges small and medium scale enterprises encounter in assessing business loans.

v.        To proffer solutions to the challenges small and medium scale enterprises encounter in assessing business loans.

 Research Questions

The following research questions will be answered in this study:

i.          To what extent do small and medium scale enterprises assess business loans?

ii.        What are the avenues small and medium scale enterprises can access business loans?

iii.      What are the factors that affects small and medium scale enterprises access to business loans?

iv.      What are the challenges small and medium scale enterprises encounter in assessing business loans?

v.        What are the solutions to the challenges small and medium scale enterprises encounter in assessing business loans?

 Significance of the Study

The effective tactics found in this study might have a substantial impact on the ability of present and future SMEs to get business loans, continue their operations, and contribute to economic growth. Helping small and medium-sized enterprises develop methods for obtaining capital loans can result in good social change by boosting economies and generating employment. In addition, the development of successful techniques may improve connections between financial institutions and SME owners. The Federal Government of Nigeria might utilise the findings of this study to encourage and assist the development of current small and medium-sized firms (SMEs) and to stimulate the formation of new enterprises.

This study has the potential to contribute to societal change by providing SME owners with information on SME financing sources. While obtaining business loans, executives of small and medium-sized enterprises (SMEs) might discover techniques that may need them to adjust their current tactics or apply novel ways. Financial institutions may potentially find benefit in this investigation.

By charging interest rates on SME loans, banking institutions create revenue and profits. In addition, the expansion of small and medium-sized enterprises (SMEs) owing to their successful access to business loans might assist regulatory agencies in Nigeria collect extra revenue through taxes and business licence fees, which could be utilised to benefit the whole population.

 Scope of the Study

This study focuses on the accessibility of business loans for small and medium scale enterprise in Nigeria. Specifically, this study will determine the extent small and medium scale enterprises access business loans, examine the avenues small and medium scale enterprises can access business loans and examine the factors that affects small and medium scale enterprises access to business loans.

In addition, this study will also find out the challenges small and medium scale enterprises encounter in assessing business loans and finally proffer solutions to the challenges small and medium scale enterprises encounter in assessing business loans.

Owners and workers of selected small and medium scale enterprises in Port Harcourt, Rivers State will serve as enrolled participants for the survey of this study.

 Limitations of the Study

In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. However, the researcher were able to manage these just to ensure the success of this study.

Moreover, the case study method utilized in the study posed some challenges to the investigator including the possibility of biases and poor judgment of issues. However, the investigator relied on respect for the general principles of procedures, justice, fairness, objectivity in observation and recording, and weighing of evidence to overcome the challenges.

Definition of Terms

Small and Medium Scale Enterprises: A small and mid-size enterprise (SME) is a business that maintains revenues, assets or a number of employees below a certain threshold. Small and medium-sized enterprises or small and medium-sized businesses are businesses whose personnel numbers fall below certain limits. The abbreviation “SME” is used by international organizations such as the World Bank, the European Union, the United Nations, and the World Trade Organization.

Business Loan: A business loan is a loan specifically intended for business purposes. As with all loans, it involves the creation of a debt, which will be repaid with added interest.