IMPACT OF LOAN AVAILABILITY AND ACCESSIBILITY ON THE PERFORMANCE OF SMALL AND MEDIUM-SCALE INDUSTRIES

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

            Small and medium-sized enterprises (SMEs) play an important role in promoting economic progress in nations across the world, and Nigeria is no different. According to Adeyeye; Egbetokun,  Opele,  Oluwatope, & Sanni,  (2018), small and medium-sized enterprises (SMEs) boost economic growth and vitality in most nations, particularly those in developing countries. Nigeria's small and medium-sized enterprises (SMEs) are the major engines of entrepreneurial innovation, economic development, and job creation. Ullah (2020) argued further that through establishing work possibilities, offering individuals outlets to make income, create wealth, and eliminate poverty in emerging nations. According to Sansa (2019), small and medium-sized firms (SMEs) supply more than half of all jobs worldwide, contributing to economic growth by decreasing unemployment rates and boosting living standards in every country.

Owing  that the official poverty rate in Nigeria is exceptionally high (Obi et al., 2018), Nigeria's small and medium-sized enterprises (SMEs) are the major engines of entrepreneurial innovation, economic development, and job creation (World Bank, 2017). According to Balogun, Agumba, & Ansary (2018) research, the contributions of SMEs to the construction of economies account for fifty percent of global GDP and sixty percent of global employment. Furthermore, because businesses employ both skilled and unskilled labour, SMEs contribute to the betterment of living circumstances in their particular countries. Small and medium-sized enterprises (SMEs) accounted for 65% of firms in Nigeria in 2010 and offered 60% of job opportunities (Ullah 2020). However, a lack of access to credit capital has been a key impediment in moving these small and medium-sized firms from being profitable to assuring growth and long-term survival.

At general, small and medium-sized firms (SMEs) in the start-up period rely largely on internal finance sources. This is owing to the particular characteristics of SMEs during this stage, such as informational opacity, a lack of trade experience, and a significant chance of failure (Sanni, Oke, & Alayande 2020). It has been proven that one of the most essential aspects in the development, expansion, and success of SMEs is the availability of financial resources. SMEs use a variety of financing methods, ranging 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 then to formal external sources represented by financial intermediaries such as banks, financial institutions, and securities markets (Sanni et’al 2020).

Surprisingly, the majority of small and medium-sized firms (SMEs) rely on financial institution loans as their principal source of outside finance. Sansa (2019) revealed that smaller firms had fewer access to financial resources than larger enterprises, resulting in their slow survival and profitability. Credit availability is determined by a variety of factors, many of which are linked to the operations of companies and banks. One of the criteria that may be used to differentiate loan terms is the size of the firm. Small and medium-sized firms (SMEs) find it challenging to obtain finance due to insufficient information supplied to banks and information asymmetry. This is due to the fact that small enterprises have limited access to financial markets due to a perception of greater risk, informational barriers, and increased inter-mediation costs (Mwende, 2021).

1.2 Statement of the Problem

In recent times, availability and accessibility of loans has been a major barrier limiting the performance of Small and Medium scale businesses in Nigeria.. The major obstacles to SME access to financial solutions loans in Nigeria have been cited as exorbitant interest rates, collateral requirements, and lengthy procedures (Rusu & Roman, 2017). There is a lack of financial institutions that accommodate to the requirements of small to medium sized businesses. It is commonly found as information asymmetry among funding institutions and SMEs, as a result, financial instructions are reluctant to approach loans of SMEs, and SMEs are reluctant of approaching banks (Mwende, 2021). This impasse makes it challenging for SMEs to obtain the necessary funding they require to get their businesses to the point of endurance and success.

Bizarrely, financial institutions frequently base their funding decisions on a lack of or non-existence of business financial records in SMEs. Therefore, it is difficult for SMEs to get finance (Bushe, 2019). Other factors cited for the delayed effect of financing on SMEs include a lengthy loan application procedure, complexity, and inadequate distribution channels (Eyiah, Kheni & Acquah, 2018). Although the main goal of these funding was to improve SME financial results, minimal progress has been made (Kirikiru, 2021).On the supply, most traditional banking institutions see SMEs as untrustworthy, and therefore refuse to lend to them. Access to credit has been challenging for the SME sector in Nigeria, since most banking institutions see them as unreliable and impose stricter lending criteria before extending loans. Bushe (2019) also concurred with the above by indicating that when SME businesses collapse, financing institutions frequently lose the funds they provided to them. This is the hazard or danger most financing institutions are wary of when it comes to approving loans to SMEs, mentioning problems such as loan default and information irregularity.

Although several studies have been conducted on the contribution of SME’s to the local economy and methods of financing SME’s, recently, there are renewed interest of scholars on how loan availability and accessibility impacts the performance of small and medium scale businesses. Upon this background the researcher seeks to examine impact of loan availability and accessibility on the performance of small and medium-scale industries.

1.3 Objective of the Study

The broad objective of this study is to examine the  impact of loan availability and accessibility on the performance of small and medium-scale industries. Other specific objectives includes:

i.          To investigate  the avenues small and medium scale enterprises can access business loans.

ii.        To examine whether loan is made available for small and medium scale enterprises financing.

iii.      To ascertain the extent at which loan is made accessible for small and medium scale enterprises

iv.      To establish the significance of loan availability and accessibility on the performance of small and medium-scale industries.

1.4 Research Questions

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

vi.      Are  loan  made available for small and medium scale enterprises financing in Nigeria?

vii.    What is the extent at which loan is made accessible for small and medium scale enterprises?

viii.  What is the significance of  loan availability and accessibility on the performance of small and medium-scale industries?

1.5 Significance of the Study

This study has the potential to contribute to societal change by providing SME owners with information on SME financing sources. 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. 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. More so, 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. Financial institutions may potentially find benefit in this investigation.By charging interest rates on SME loans, banking institutions create revenue and profits. Empirically, the study will contribute to the general body of knowledge and scholars who wish to conduct further studies in related field.

1.6 Scope of the Study

The scope of this study border on the  impact of loan availability and accessibility on the performance of small and medium-scale industries. The study further discussed 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 and extent at which loan is made accessible and available for small and medium scale enterprises. The study is however delimited to selected small scale business enterprises in Lagos State.

1. Limitation 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 researcher including the possibility of biases and poor judgment of issues. However, the researcher relied on respect for the general principles of procedures, justice, fairness, objectivity in observation and recording, and weighing of evidence to overcome the challenges

1.8 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

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.

Business performance: Business performance, which is closely tied to commercial effectiveness, is determined by the ability of a company to implement optimal organisation goals with the aim of offering a product or service that meets the expectations of consumers and customers.

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