For both developing and developed countries, small and medium scale
firms play important roles in the process of industrialization and
economic growth. Apart from increasing per capita income and output,
Small Medium businesses create employment opportunities, enhance
regional economic balance through industrial dispersal and generally
promote effective resource utilization considered critical to
engineering economic development and growth. However, the seminal role
played by Small Medium businesses notwithstanding its development is
everywhere constrained by inadequate funding and poor management. The
unfavourable macroeconomic environment has also been identified as one
of the major constraints which most times encourage financial
institutions to be risk-averse in funding small and medium scale
businesses. The reluctance on the part of financial institution to fund
Small Medium businesses can be explained by the insufficient capital
base of banks and information asymmetry that often exists between Small
Medium businesses and lending institutions.
This study critically examines the availability of business credit to
small business in Nigeria, and how more funding can be made to support
small businesses. However, this chapter, forms the basic foundation for
this study as it presents the objectives of the study, and the statement
of problem that motivated the researcher to undertake the study.
1.2 BACKGROUND OF THE STUDY AND ORGANIZATIONAL PROFILE
During the 1990s, a number of studies documented that lending to
small businesses and the economic activity of small businesses were
affected by financial sector disruptions, such as the widespread merging
of banks of all sizes and the capital shortfalls occasioned by large
Although not much previous research has examined discrimination in
small business credit markets, there has been an active debate on the
question of whether banks discriminate against minority applicants for
mortgages. In an influential study in that area, researchers at the
Federal Reserve Bank of Boston tried to collect any information that
might be deemed economically relevant to whether a loan would be
approved along with the borrower’s race andf financial status (Munnell
et al., 1996). In the raw data larger firms had 10 percent of their
loans rejected versus rejection rates of 28 percent for small scale
businesses. After controlling for the large number of variables
collected to establish the credit-worthiness of the borrowers
(including, the amount of the debt, debt/income ratio, credit history,
loan characteristics, etc.) small scale businesses were still percentage
points less likely to be granted the loan.
A variety of criticisms have been launched at this study (see, for
example, Horne 1994; Day and Liebowitz, 1998; Harrison, 1998); responses
to these criticisms are found in Browne and Tootell (1996). The most
common critique indicates that we cannot make a determination of
discrimination unless those small businesses whose loans are approved
have a greater likelihood of repayment. This argument rests critically
upon an implied assumption that the distribution of repayment
probabilities for large companies and small businesses is identical. His
figure indicates that if this assumption is met and if firms
discriminate against small businesses by setting a higher bar for loan
approval, then the mean rate of repayment among small businesses
conditional upon loan approvalwill be higher for large and smaller
1.3 PROBLEM STATEMENT
Small businesses and entrepreneurial ventures which are usually
considered as the engine that run the economy are usually denied access
to credit due to their risky nature. This disturbing threat has existed
for a very long time and needs proper attention from both government
agencies and non governmental agencies as well. The importance of small
businesses in the development of Nigeria cannot be overlooked. Without
proper credit availability to small businesses, the economy as a whole
will suffer. The objectives of economic planning cannot be achieved if
small businesses do not do well. Keeping this in view, the Bank of
Nigeria has streamlined Bank’s lending operations to ensure that banks’
credit actually benefits small and medium businesses in Nigeria. This
strategy is intended to improve the economy and to develop rural areas
However, there is some anecdotal evidence that most beneficiaries of
business credit from most financial institutions are salaried workers
and large scale companies, whose ability to repay loans are believed to
be better than that of small scale businesses. Moreover, this belief is
not always the case as some small businesses who go for loans are well
profitable and well managed.
1.4 RESEARCH OBJECTIVES
This paper is aimed at the following objectives:
1. To examine the relationship that exist between small scale
businesses and financial institutions that grant business credits in
2. To identify the challenges faced by small businesses in securing business credit in Uyo.
3. To examine the degree of business credit availability to small businesses in Uyo.
4. To identify the effects of businesses credit availability on small businesses in Uyo.
1.4 RESEARCH QUESTIONS
The following questions were used by the researcher in achieving the research objectives of this study:
1. What relationship exists between you and financial institutions that grant credit in Uyo?
2. What challenges do you face when securing credit for your business?
3. How often business credit is made available to you when you apply for it?
4. What effects have the availability of business credit had on your business?
1.5. RESEARCH HYPOTHESIS
H0: Business credit is not readily available to SMEs in Nigeria
H1: Business credit is readily available to SMEs in Nigeria
1.5 SIGNIFICANCE OF THE STUDY
This study is very important because it is aimed at examining the
effects of business credit availability and its effect on small
businesses in Uyo. The paper will provide some relevant recommendations
for policy makers, development agencies, entrepreneurs, and small
business managers to help seek better ways to increase business credits
to small businesses, and appropriate strategies to improve the small
business sector in Nigeria.
Secondly, the study is also vital since it suggest to small
businesses certain strategies they can adopt before seeking business
credits, to make their borrowing process easier and more effective. This
will go a long way to increase the efficiency and profitability level
of small businesses in Uyo. Any time these strategies are put in place,
access to business credit increases, and the participation of more
people in entrepreneurial activities will also increase, hence the
economy of Nigeria will be improved.
1.6 SCOPE OF THE STUDY
The area chosen for this study is Uyo in the Eastern region of
Nigeria. The study is limited to the effects of business credit
availability on small businesses in Uyo, using various small businesses
in Uyo as a focus point.
1.7 LIMITATION OF THE STUDY
In undertaking this research, the researcher encountered the following problems;
1. The time used to undertake the study was limited. The time was
loaded with other academic activities and as a result limited time was
made available the study.
2. Also, response from the various small business owners through the
questionnaire provided by the researcher was also a bit slow. This is
because of reasons such much work load on the part of the respondents.
1.8 CHAPTER SCHEME
The project will be organized around following chapters;
Chapter one gives an introduction to the research work. It gives the
basic information about the company and the research being undertaken.
This chapter therefore consists of the background of the study and
organizational profile, statement of the problem, objectives, research
questions, significance of the study, scope of the study, and
limitations encountered by the researcher.
Chapter Two consists of the literature review and the theoretical framework
Chapter three gives details of the research methodology. The
research methodology represents the various ways and methods which the
researcher used in order to gain his information.
Chapter Four gives the analysis and interpretation of the information gathered by the researcher.
Chapter five gives the findings and conclusion of the researcher.
Here, conclusions will be drawn based on the findings and their
implications will also be given.