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ANALYSIS OF PROBLEMS OF
FINANCING SMALL SCALE BUSINESSES
ABSTRACT
This research study investigates the problems of financing a
small scale business and impact of financial institution on entrepreneurial
development of small-scale entrepreneurs that are craving for growth and
development in a stiffened economy called Nigeria. The objectives of the study
is to ascertain the present economic state of the life’s of entrepreneur in
Nigeria and small-scale businesses with the view to identify the major problems
that effect the financing of small-scale businesses bearing in mind the
adequate financing stands as in energizer to its operations. The research used
questionnaire as an instrument of primary data collection. Tables and simple
percentages were used in data presentation. For clear analysis, the study
centers on two broad variables; the dependent variable which is entrepreneurial
development and the independent variable which is micro-financial institutions.
Three different hypotheses were formulated and tested, chi-saure test. The
study reveals that.
i) There is
significant difference in the number of entrepreneurs who use micro-finance
institutions and those who do not use them.
ii) There is a
significant effect of micro-finance financial institutions activities in
predicting entrepreneurial productivity.
iii) That there
is no significant effect of micro-finance institutions activities in predicting
entrepreneurial development.
Based on these, the study recommends as follows:-
i. The
small-scale industries and the financial houses supposed to exist in mutual
benefit.
ii. It is the
researcher hope that micro-finance institutions in Nigeria will develop more
interest in supporting the growth of SMEs.
iii. The
financial institution need to put more effort in financing SMEs, their role
need to be felt by SMEs, in terms of growth and development.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF
THE STUDY
It is necessary to stress the point that to succeed in
business required some measure of discipline. Most industrialist expect to make
a reasonable profit from the investment of time and resources that they have to
make in other to bring a project to fruition.
While this may sound simple enough, the border line is the
fact in an element wide context, the rate or level of reward that can accrue to
various level of effort, discipline and productivity should never be allowed to
get out of proportion in relation to effort put in.
Experience has shown that industrial pursuits have been found
to yield for the patient and disciplined industrialist rather than stand for
business concern with all kinds of effort mostly unproductive and require no
legitimate effort to reap profits in multiple fields. After considering the
above mentioned statement of facts about industry. The question is how far are
we from being industrialized bearing in mind that it yields for disciplined and
patient industrialist, all things being equal.
Taking cognizance of the fact that a step forward is the
beginning of a mile. Some Nigeria’s business industrial evolution will only
start when positive steps are taken towards adequate financing of small-scale
businesses. The experience of newly industrialized countries has been an eye opener. Finance is the
greatest problem we are likely to face whenever we talk of establishing a
small-scale industry.
This is the most important aspect of business enterprises and
a lot of controversy surrounding the problem of inadequate finance. A close
look on the small-scale industries/businesses all over the country would help
to throw further light on the effective of lack of fund on growing businesses.
The drastic effect is mostly felt when one tries to study the rate at which our
young industries are gradually collapsing. Even the surviving ones are terribly
looking for assistance that they are not sure of. Funds are scare, hence the
growing industries as regarded in this part of the world as never-do-well especially
Nigeria. When an economy is shaky, growing industries in that economy tend to
suffer most and usually stand the taste of time. Hence an increase in the
number of causalities in this regard.
1.2 STATEMENT OF
PROBLEM
There are various problems facing the establishment of small
scale businesses like financial limitation, lack of raw material, poor
management and quality of the management staff, poor accounting method, high
interest charge on loans and lack of adequate planning and feasibility studies.
The most common and problematic issues is funding.
Small-scale businesses find it difficult to obtain fund from established
institution like commercial banks and because of the some projects have take
off but had to be abandoned half way. The issue involved is the question of
capital adequacy.
When a company is under capitalized it cannot realize its
full potentials. Many small-scale enterprises in Nigeria experience this
problem. They cannot expand their scale of production to optimum level.
To improve these problems therefore government should
implement the law or policy that made to enhance small-scale businesses, such
as central bank policy that direct all commercial bank to give out some
percentage of loan to small-scale businesses than those of medium and large
scale industries/businesses.
1.3 PURPOSE OF THE
STUDY
The purpose of this study includes:
a) To
ascertain the present economic state of the life’s of small-scale businesses
with the view to identify the major problems that affect the financing of
small-scale businesses bearing in mind the adequate financing stands as an
energizer to its operations.
b) To
determine what strategies employed by the surviving and successful ones among
them towards alleviating these problems.
c) To
ascertain the extent to which the financial institution has helped to develop
small-scale businesses.
d) It will
equally serve as spring board or progenitor of further researches in the area
of small-scale businesses management. It will lead to more effective business
decision making by small-scale business operators/managers.
e) To provide
a useful guide for the prospective entrepreneur who may choose self-employment
as a career, especially in lines of business.
1.4 RESEARCH QUESTION
This issue will not be treated in isolation taking into
cognizance the level of development in Nigeria. Based on this, questions were
asked by the researcher, which includes:
1) What number
of small-scale businesses have benefited from the commercial house loans and
advances?
2) To what
extent does small-scale businesses cope with the inadequacy of funds?
3) What are
the strategies employed by the surviving and the successful ones?
4) How do
small-scale businesses apply for loans from financial institution?
5) What are
the role of the government and organizations in finding lasting solution to the
problems numberated above?
1.5 HYPOTHESIS
1) Ho:
Government monetary and fiscal policies has not effect small-scale
entrepreneurs operations.
Hi: Government
monetary and fiscal policies do effect small-scale entrepreneurs operations.
2) Ho: The societal status of management staff and
personal have not influence the degree of credit mobilization from financial
institutions.
Hi: The societal
status of management staff and personal have influence the degree of credit
mobilization from financial institutions.
3) Ho: Small Scale businesses have not lack
adequate funds for the smooth running of the business.
Hi: Small Scale
businesses have lack adequate funds for the smooth running of the business.
1.6 SCOPE (DELIMITATION)
OF THE STUDY
The area situation would have been the study of all the small
scale businesses Nigeria but however, this would have posed some threats to the
researcher. Among them were the lack of adequate fund meet the rising cost of
research. Unavailability of sufficient books by Nigerian authors in the area of
small businesses and its problems. Also the problem associated with the
collection of data consequently, the study is especially design to examine the
analysis problems of financing small scale business, in Enugu State towards
getting financial assistance from financial houses.
1.7 SIGNIFICANCE
OF THE STUDY
The significance of this research is that the result will help identify how businesses loan
are obtained, or secured both locally and internationally from financial
institutions are being used. On this note awareness is being created or it will
help to create it on how fund or finance could be raised to finance small scale
businesses.
1.8 DEFINITION OF
TERMS
PRODUCTION: Any business oriented action that aimed at
converting input into output of goods or services.
INVESTMENT: The
outlay of money for income or profit the sum invested in business or the
property purchased.
CAPITAL:
This is the firm’s action plan aimed at achieving its objectives,
satisfying the need of the customer and servicing the competition in its
environment.
FEASIBILITY STUDY: This is the finding aimed at determining
the business profit potential and return on investment.
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