The sprout of small and medium scale businesses into the Nigerian business environment cannot be overemphasized. To that effect, it is imperative to being to discussion on loan procurement procedures for these small and medium scale businesses with regards to their problems and prospects.
SMEs rely more proportionately on loans to finance their businesses. In developed countries, loans are used as effective tools in fostering and improving SMEs. Besides, loans are in form of stepping – stones for SMEs are high and are such need financial backbone to survive the economic scourge of developing countries like Nigeria and Enugu State in particular.
BACKGROUND OF THE STUDY
It has been a view held by government, academic and business circles that, SMEs should be separate from big firms because of their distinct nature. As such SMEs face a chain of difficulty concerned to large firms or business organizations.
The Nigerian business environment offers many business opportunities. Since the enactment of the Nigerian promotion Decree of 1972, which was later revised in 1977, the economic environment has been conducive and encouraging for business pursuits. Not only that small industries division of the federal ministry of industry was instituted to further the interest of SMEs. In response, SMEs are springing up everyday since its establishment., And in encouraging continuity and growth , the Central Bank of Nigeria (CBN) through its policy guidelines for SMEs for each fiscal year, Oil mineral producing Area Development Commission (OMPADEC), Agricultural Development Bank (ADB), Nigerian Industry Development Bank (NIDB), Nigeria Bank for Commerce and Industry (NBCI), National Association for Small Scale Industries (NASSI), NGOS etc has been making concerted efforts towards assisting SMEs with different forms of loans.
Pathetically, the marketing rate of these SMEs is still relatively high due to lack of knowledge of loan procurements since most of the business operators are either ignorant or not familiar with the procedures and of-course importance of loans.
The need therefore to accord there SMEs special attention in loan procurement and procedures becomes a must do now that the economy of Nigeria is undergoing a total over handling. For there SMEs to function both effectively and efficiently, loans are essentially important the researcher deem it fit to study loan procurement potentials for SMEs and thereby evaluate its problems and prospects.
STATEMENT OF THE RESEARCH PROBLEM
There is no gain saying the fact that, business has been on the increase in Enugu State. This is so because of its being endowed with both human and natural resources and of-course zealous and dedicated people. That gave rise to the springing–up of various businesses. However, this is not without others going out if either difficult or impossible to obtain loans and or overdrafts from banks and other financial institutions. These difficulties led a handful to them operating at a very low level as a result of limited capital base. This inversely led to minimal profit, retardation and eventual death of there businesses. To that effect, this research would like to examine the issues behind such state of affairs.
a. Could it be as a result of inadequate capital?
b. Could it be lack of collateral security for loan procurement?;
c. Could it be as a result of inadequate knowledge of the range of sources of finance potentials open to them?
d. Or could it be due to businessmen by financial institutions and other bodies? All these and other functions prompted this study. An attempt will therefore be made to answer their questions and also offer some useful suggestions and recommendation.
OBJECTIVE OF THE STUDY
Ensuring that SMEs survive this economic hardship through provision of loans and thereby providing a condusive business environment.
This study is also aimed at making SMEs attain their objective through effective service, profit maximization, social life and business growth. This is so because SMEs are economic institutions that has the purpose of producing and distributing goods and services or more basically, the satisfactions associated with them. To that note, this study is totally aimed at ensuring achievement, challenges stimulation of now experience, growth and advancement of economic activities. All these will not be possibly be possible unless the assistance of financial institutions.
This paper will address the following issues:-
1. Whether the growth of SMEs has been hampered by inadequate capital;
2. How strenous is it for SMEs to obtain loans
3. Whether the difficulties also as a result of lack of collateral security;
4. Whether the difficulties emanates from corrupt practices and other impediments on the part of financial institution and government bodies;
5. Whether the low expansion and growth of SMEs is due to poor management;
6. Whether this poor performance is a result of little turnover and profit resulting from poor market or marketing strategies;
7. And whether the poor assets base is due to inadequate knowledge by businessmen of the range of sources of finance potentials open to them?
SIGNIFICANCE OF THE STUDY
Every research work is aimed at addressing a particular issue and find solution(s) to the problem(s) at stake. Looking at the Nigerian business environment and Enugu State in particular, one would notice that SMEs are allegedly being treated rather unfavourbaly by financial institutions with regards to the funds. If this is so and given the importance of SMEs to an economy, then there are implications to the and government policies.
Since SMEs are a vital part of the economic and social life of a people, it is however amazing that it is being embraced recently by the academics, businessmen and government making it possible to really big businesses in microcosm.
To that note, this research work tends to reduce if not eliminate these problems. The aim of this research work is to enlighten SMEs on the procurement of loans and how to tackle the problems being faced by them. Not only that the research will educate potential and prospecting businessmen on loan procurement procedures. By and large, businessmen will be exposed to the ethics involved in loan procedures offered by financial institutions i.e. which of the fund market (s) to approach should a need arise. This research work will able be of immense help to the entire populace since it will make available the problems. It is worthy of role that, academics the general public, businessmen and indeed well-meaning individuals will find this piece a must need since same situation(s) may apply to third respective areas of business event though the research is restricted to Chinedu furnitures Uchenna Designs, Pacific publishers and Amaka Groceries.
SCOPE OF THE STUDY
This study tends to critically analyze the problems associated with loan procurement in SMEs. But it will be too broad to talk on all the SMEs in Enugu State or Nigeria as a whole. As a result, I have to limit the scope of the study to loan procurement for small and medium scale business problems and prospects.
The study is designed to investigate and bring to limelight the activities of Banks, and other financial institutions forwards SMEs with regards to assistance in form of loans to boost the businesses.
Notwithstanding the fact that, the study concentrates on a selected SMEs, it does not in anyway render its funding irrelevant or not useful to other businesses of the same category in Enugu state and Nigeria as a whole because most of the problems faced by SMEs are homogeneous as such I used those aforementioned as a reference which could be applicable to others in Enugu State and Nigeria in general.
Since the brain behind this research work is to view closely the problem(s) with respects to loan procurement in some selected SMEs, some useful available literatures relating to loan procurement and public opinion expressed in the daily newspapers were used in order to further make elaborate research. Fields research findings were also brought to bear by the researcher. Such findings as entails problems associating with the difficulties in both obtaining and repayments of loans) by SMEs: Gainful information was also obtained from banks and from banks and other financial institution so as to ascertain to some extent the number of business that have so far benefited from loans and the difficulties (if any) faced by the Banks in terms of reducing the loan(s). Consequently, feedings nursed by industrialists based on personal opinions were also canvassed.
The hypothesis of this research tends to test the assumption that:-
HO: SMEs find it relatively difficult to procure loan(s) from financial institutions.
H1: SMEs obtain loan(s) with ease from financial institutions.
HO: SMEs have been given the required priority and attention by the government.
H1: SMEs’ have not been given the required priority and attention by the government.
1.8 DEFINITION OF TERMS
Certain words may sound the same though with different meanings i.e. depending on their usage. It is on that note that the researcher decides to define the following words and terms as used in the research study. Also different disciplines has different registers peculiar to them and as such this definitions to enable the research work easily understood by people of other fields or disciplines.
a. LOAN:- Lump-sum of money collected form either a bank or a financial institution to be repaid at an agreed period of time and the interest rate to be paid. Normally, loans are repaid based on installment payments to be determined by the Bank/financial institutions.
b. CAPITAL: Savings or accumulated wealth put to economic use as investment in a business, banking, production etc, or sum of money used in commencing a business venture. It could include assets such as machinery, buildings, land, vehicles, stocks etc that will be used for the production of wealth.
c. COLLATERAL SECURITY: This refers to the assets of a business entity surrendered to either a bank or a financial institution as a promise to secure a loan with the intent that, should the businessman default in paying back the loan, the property or asset in questions will be sold order to offset the loan.
d. CREDITY: A permission by either a bank or a lending company to delay payment by a person(s) or company for goods and services rendered until a later date when they have received.
e. OVERDRAFT: A sum of money lent to a person(s), company etc. by a financial institution or a bank allowing them to spend more money than is in their account(s)
f. TURNOVER: The amount of money that is taken in a business link in a certain period of time or the rate at which goods are sold and replaced in a business within a period of time.
g. DEPOSITS: These refer to funds that customers leave in their accounts whether current or savings account.
h. ADVANCES: These are in the form of overdrafts. Interest is chargeable on all advances, the rate varying with the method of granting the advance, credit worthiness etc.
i. CURRENT ACCOUNT: Customers with this account(s) are usually issued with a cheque book which enable them draw or write out cheques instruction the bank to pay cash from the account or make payments.
j. SAVINGS ACCOUNT: Holders of this account do not have the benefit of a cheque book instead they are paid interest on monies left with the banks, i.e. the money will not be required immediately.
k. BANK: An organization or a place that provides financial service. Customers keep their money safely in banks and paid out on demand by mean of cheques etc.
l. INTEREST: A legal right to share in a business, especially in its profits.
m. INTEREST RATE: An amount charged on a person, business company etc for borrowing money, or amount paid to an investor.