The Problems Of Financing A Small Scale Business In Nigeria

Project and Seminar Material for Business Administration and Management BAM

Project and Seminar Material for Business Administration and Management BAM


This study focused on the problems of financing of a small scale business with a case study of a garri processing industry in Enugu. Small and Medium Scale enterprises are important in the economic development of many countries (Braun, 2003a, Eunni, Brush & Kasuganti, 2007; Golding, Donaldson, Tennant & Black, 2008; Berisha-Namani, 2009). As such proper financing is paramount. This study focused problems SMEs face in accessing finance considering it’s the main factor to consider while setting up a business. The purpose of this study include: Examine the sources of finance the garri processing industry, Determine the extent of financing from the government and banks, Determine the effect of use of existing financial strategy on the growth of SMEs.

A survey research method was adopted with a systematic sampling technique was used and ANOVA was used for the analysis. After result from the study was discussed some recommendations were provided.

Chapter One


1.1 Background Of The Study

It is necessary to stress the point that to succeed in business require 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 bother line is the fact in an economy 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, therefore Nigeria’s business industrial evolution will only start when positive steps are taken towards adequate financing of small scale business. 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 crucial aspect of business enterprise and a lot of controversy surrounding the problem of inadequate finance. A close look on the small scale industries/business, all over the country would help to throw further light on the effect of lack of fund on growing business. The drastic effect is mostly felt when one tries to study the rate at which our young industries are gradually collapsing. Even 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-wells 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.

The researcher aimed at exploiting the possibilities, problems of financing small scale business/industries. The project centers on management and financial problems

1.2 Statement Of The Problem

Finance has been identified as the major underlying requirement and an important input factor in the development and industrialization effort. Plant, machinery and equipment must be paid for as well as the development of managerial and technical expertise. The need for finance is seen as essential in the creation of a general economic environment conducive to sustained economic development. The task of development therefore, must involve the conversion of finance into the requisite factor inputs and the efficient deployment of such inputs.

In the absence of formal credit markets, there exist the informal sources for the provision of finance to the SMEs sub-sector. Such sources for the provision of finance to the SMEs sub-sector include savings/retained earnings, contribution from friends and relatives, isusu, co-operative and thrift societies etc. Though notwithstanding both the formal and informal sources of finance to the sub-sector, these sources could not satisfy their financial demands to the impediments we have noted before militating against securing loans by the SMEs. Today in Nigeria, both the existing and emerging indigenous entrepreneurs are in dire need of financial resources from both the international and domestic sources. Poor funding of SMEs has been one of the factors responsible for the country’s sluggish economic growth and development.

Based on the foregoing and in view of the perennial problems of financing SMEs, this study seeks to investigate the better ways and effective strategies that SMEs in Enugu use in financing their operations and the effects on their businesses.

1.3 Purpose Of The Study

The purpose of this study include:

  1. Examine the sources of fiancé of SMEs in Enugu State.
  2. Determine the extent of financing from the government and banks to SMEs in Enugu State.
  3. Determine the effect of use of existing financial strategy on the growth of SMEs.

1.4 Research Questions

Based on the foregoing, the research questions for this study includes the following:-

  1. How did small and medium scale enterprises fund their start-up operations?
  2. What financial problems do they encounter in the formal financing sector?
  3. How has inadequate funding of their operations hindered their growth?
  4. To what extent has the government and banks funded SMEs in Enugu State?
  5. How has the existing financing of SMEs enhanced or impeded the growth of SMEs in Enugu State?

1.5 Research Hypotheses

To guide inquiry, the following null hypotheses were formulated:

Ho1: SMEs in Enugu State do not have problems to fund their start-up operations.

Ho2: Government and banks have not funded SMEs properly in Enugu State.

1.6 Scope Of The Study

The area situation would have been the study of all the small scale business in Nigeria but however, this would have posed some threats to the researcher. Among them were the lack of adequate fund to meet the rising cost of research. Unavailability of sufficient books by Nigerian authors in the area of small business and its problems. Also the problem associated with the collection of data.

Consequently, the study is specially design to examine the problems of garri processing industry at Abakpa Nike, Enugu towards getting financial assistance from financial houses.

1.7 Significance Of The Study

The findings of this study will enlighten the government on how to make policies that will be favourable to the sub sector. It will educate banks and other financial institutions on the need to adequately finance SMEs because of the vital role the subsector plays in the nation’s economic development. The study will also reveal to the SMEs operators the best financing options available to them to tap on. The findings of the study will open the eyes of SMEs operators to realize that loans advanced for business is not for pleasure and should not be diverted to other uses such as marrying many wives, taking chieftaincy titles, riding luxurious cars etc. It will help operators use bank loans judiciously. This study will contribute to the existing body of knowledge and will therefore broaden the minds of scholars intending to carry out research in the related area of study. The work will help intending businessmen and women on the right steps to take while establishing their businesses in order to excel. The findings of the study will also encourage local industrialists to develop indigenous technology for maximum benefits.

Finally, the work will no doubt be useful to the general public as a source of literature.

1.8 Limitation Of The Study

This study is limited specifically to analyze the problems face by small scale business in obtaining finance. A case study of garri processing industry Abakpa Nike, Enugu and some other selected small scale business in Enugu State.

In consideration of the nature of this work and purpose for which it is intended to achieve as well as the anticipated result, the research methodology as may adopted were those found to be most relevant and appropriate.

Therefore the information to generate or needed will be that relating to the research questions asked.

1.9 Definition Of Terms


Any business oriented action which aimed at converting input into output of goods or services.


The outlay of money for income or profit the sum invested in business or the property purchased.


Accumulated wealth especially when used to produce more wealth.


This is the firms action plan aimed at achieving its objectives, satisfying the need of the customers and surviving 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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