HINDRANCES TO BANK CREDIT EXTENSION TO SMALL SCALE BUSINESSES IN NIGERIA
HINDRANCES TO BANK CREDIT EXTENSION TO SMALL SCALE BUSINESSES IN NIGERIA, CHAPTER ONE
Small scale business is the pivot that drives the free market system, generates a lot of energy, innovates, and creates jobs for millions of Nigerians.
The criteria for establishing what is “small” and what defines the nature of “business” determine the definition of little Scale Business. A business, as it is widely called, is any endeavour undertaken only for the purpose of profit. Different factors are used to differentiate between large and small scale businesses.
According to Hatten (2006:4), business organisations are classed based on the number of employees, sales revenue, total asset value, owner's equity value, and industry in which the business operates.
According to Essien (2007:5), enterprises can also be categorised based on the tangibility of what they generate. Some firms' products are physical, and hence can be seen, touched, tasted, smelled, or heard.
Automobiles, watches, clothing, toothpaste, and furniture are examples. Intangible products produced by some firms include: financial services, hospitality services, the services of doctors, lawyers, hairdressers, stewards, teachers, barbers, and so on.
The size of the business is the most popular factor for defining businesses in Nigeria. According to Essien (2007:7), the indices of business size in Nigeria include capital or asset based and the number of personnel employed.
According to Obitayo (1991), the Centre of Industrial Research and Development (CIRD) at Obafemi Awolowo University, Ile Ife, defines a Small Scale Business as one with total assets in capital equipment, plant, and working capital of less than N250,000.00 and fewer than 50 full-time employees.
A small firm is also defined as “one that is independently owned and operated, and is not dominant in its Field.” According to the definition, over 85% of Nigerian businesses are tiny.
These small businesses are found in manufacturing, wholesale, retailing, service sectors, building and civil engineering, construction, transportation, communication, and finance. Small enterprises can be found in almost every sphere of human endeavour in Nigeria (Nwachukwu, 2005).
According to Onuoha (1994:18), small-scale company has been around for a long time. Because individuals lack the resources for larger enterprises, small size businesses have flourished in the economy.
Its scope and nature have also expanded, ranging from street trading to the vast proportion of private limited liability corporations that are typically classified as family businesses.
They have nearly controlled the entire range of economic activity and employ more people than the entire public sector. Many of these companies are run by their owners, or at least the owners of a significant share of the stock capital.
Historically, the primary purpose of bank credit to small enterprises has been to finance working capital. Most small-scale firms' financial needs are significantly reliant on the financing of working capital and some of their existing assets; what to use the funds for, where to receive the funds, and how to spend the funds.
The money are the lifeblood of every successful firm. Finance plays a key role in all commercial organisations, and neglecting its role may result in business failure, inability to finance turnover for profit maximisation, and so on (Ezejulue, 1988:179).
Despite the multiple benefits or necessity of bank credit to small businesses, small firms nevertheless find it difficult to obtain credit. Among the reasons for this are a lack of security collateral and a poor financial track record, among others.
These act as impediments to Small Scale Businesses obtaining loans. As a result, this paper will investigate the Barriers to Bank Credit Extension to Small Scale Businesses in Nigeria.
STATEMENT OF THE PROBLEM
Small-scale enterprises have grown to be significant contributors to the Nigerian economy. According to a World Bank assessment on the access to finances of Nigerian firms and businesses,
banks are hesitant to make loans to small size businesses (World Bank, finance report, 2003). Regardless of the sector's function, small firms have faced numerous obstacles that have prevented them from reaching their full potential.
OBJECTIVES OF THE study
This research will concentrate on the following specific goals:
To identify the economic roles of small enterprises.
To investigate the role of bank loans in Nigerian small companies.
To investigate the factors that influence the granting of bank credit to small enterprises in Nigeria.
To investigate the impact of bank loans on Nigerian small enterprises.
This study seeks to answer the following research question:
What functions do small enterprises play in the economy?
What are the functions of bank credit in Nigerian small businesses?
What variables influence the extension of bank credit to small enterprises in Nigeria?
What are the consequences of bank loans in Nigerian small businesses?
The following hypothesis will be developed and tested in the context of the research effort in order to outline the barriers to bank credit extension to small size firms in Nigeria.
Ho: In Nigeria, bank credit has no significant impact on small-scale businesses.
Ho: Small-scale firms have no substantial economic impact.
SIGNIFICANCE OF THE STUDY
When completed, this research would demonstrate the significance of bank credit extension to small scale firms in Nigeria, pique the interest of financial institutions and the government in providing suitable funding programmes to small scale businesses.
Apart from being a requirement for the award of a Bachelor of Science degree in Banking and Finance and contributing to the researcher's knowledge, the study will also benefit students,
lecturers at the University of Uyo and other universities, individuals, and institutions who may wish to conduct further research on the Barriers to bank credit extension to small scale businesses in Nigeria.
ORGANIZATION OF THE STUDY
This study effort is divided into five chapters: Chapter 1 (Introduction), Chapter 2 (Related Literature Review), Chapter 3 (study Methodology), Chapter 4 (Data presentation, Analysis, and Interpretation), and Chapter 5 (Summary, Conclusion, and Recommendation).
LIMITATIONS OF THE STUDY
The purpose of this research is to analyse the barriers to bank credit extension to small scale enterprises in Nigeria. It is difficult to determine the entire number of small businesses in Nigeria.
The scope of the available data (primary and secondary), the confidentiality of some respondents, the time interval permitted for completion of the study, and financial constraints will all limit the scope of this research.
DEFINITION OF TERMS
Bank: According to the Oxford Advanced Learners Dictionary, a “bank” is an organisation or a location that provides a financial service. A location where clients can hold their money safely and have it paid out on demand.
Credit: Different people define credit differently, but in business, credit implies purchasing or borrowing with the promise to repay at a later period.
There is a creditor (a person, bank, business, institution, or company to whom money is owed) and a debtor (the person who owes money) in any credit agreement.
Credit is defined as the amount of money owed to an individual or organisation (Wilkinson, 2007:92).
Bank Credit: The amount of credit available from the banking system to the organisation or individual. It is the total amount of money that a financial institution, such as a bank, is willing to lend to an individual or organisation.
Lending is the act of offering money to someone or an organisation on the condition that they repay it over time and pay interest on it. 2005 (Sampson)
Hindrances: According to the Oxford Advanced Learners Dictionary, a hindrance is a thing or person that restricts, prevents, or delays the progress of something or someone. The act of stretching out, enlarging in breadth, or extending the duration of time.
Bank Credit Extension: This is a written commitment on the side of the creditor to provide a debtor more time to repay a debt.
Small Scale Business: a business that is independently owned and operated, may be in the form of a sole proprietorship, partnership, limited liability company, or cooperative society,
is not dominant in its field of operation, and meets certain size standards in terms of employee count, annual revenue, asset base, or capital (Onuoha, 1998:5).