ABSTRACT
These research works aimed at examine
the problem of financing the small and medium scale enterprises (SMEs) in
Nigeria. The problems observed in the research work was that government should
not involve in commercial and industrial enterprises, and also government
should make favorable acquisition and allocation of funds to small and medium
scale enterprises in Nigeria.
For the purpose of providing
theoretical frame work and back-ground for the study, the
researcher reviewed various literatures such as books, magazines, journals and
unpublished past projects which directly related to the research work.
Furthermore, a structured questionnaire was designed to collect data based on
the review. . The role of government and financial institution, in the growth
and development of the enterprises in Nigeria has not been encouraging in
terms of capital.
Furthermore, keeping
of financial records and maintain control would enable us to analyze
performance and efficiency of production, to justify the use of fund and the
ability to pay back and it would reveal the danger of high interest rate.
Base on the
outcome, I therefore recommend that Nigeria government should intensify efforts
in the growth and development of small and medium scale business by making
adequate capital available and also making sure that the financial institutions
comply by the directive given to the by lending at favourable minimum interest
rate.
Furthermore, I recommend that
adequate attention should be given to them (SMES) so that the benefits such as
human, material and society development and unemployment reduction can be fully
achieved.
TABLE OF
CONTENTS
Title page
Certification
Dedication
Abstract
Acknowledgement
Table of contents
CHAPTER ONE
1.0 Introduction
1.1
Back ground and
knowledge of the study
1.2
Statement of
the problem
1.3
Purpose of the
study
1.4
Scope of the
study
1.5
Limitation of
the study
1.6
Definition of
terms
CHAPTER TWO
2.0 Literature
Review
2.1
Introduction
2.2
Entrepreneurship
2.3
Financial Small
AND Medium Scale Enterprises (SMES).
2.4
Sources of
capital Procurement
2.5
Classification
of capital or Finance
2.6
Financial
Management
CHAPTER THREE
3.0 Research
Methodology
3.1
Introduction
3.2
Research Design
3.3
Research
Instrument
3.4
Population
3.5
Sample And Sampling
Techniques
3.6
3.6 Data
Collection Procedure
3.7 Method of
Analysis
3.8 Reliability
and Validity of the Study
CHAPTER FOUR
4.0
Presentation
And Analysis Of Data
4.1 Introduction
4.2 Analysis Of
respondents bio- data 4.3
Analysis of Research Questions
4.4
Testing Of
Hypothesis
4.5
Discussion On
Result
CHAPTER FIVE
5.0 Summary,
Conclusion and Recommendation
5.1
Introduction
5.2
Summary Of The
Study
5.3
Conclusion
5.4
Recommendation
Bibliography
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
AND KNOWLEDGE OF THE STUDY
Financing Small Scale business involves the
establishment and maintenance of business ventures. It will be ideal to make a
brief analysis of what small scale business involves.
This ranges from services to manufacturing and
repairs. One distinctive feature of small scale business is the capital
adequacy which must be within the required minimum as required by the Company
and Allied Matters Act of 1991 as amended and other legal requirements
governing and regulatory various forms of business. Example, Bank and Other
Financial Decree 1991 (BOFID) and Insurance Decree 1991.
v Service Venture: This encompasses professional services such as,
Accountancy, Secretariat. Legal Services, it may also include liquidate and
receivership, management constancy to mention but a few.
v Manufacturing
Venture: This involves production of goods
for local companies which may also involves the production of local equipment’s
like form implements and machinery.
v Repairs and
Maintenance: This plays a predominant role in
the survival of both the repairs and maintenance plays a predominant role in
the survival of both the large and small scale businesses. This ranges from the
auto-mechanic and hi-tech maintenance, officer automation maintenance and
repairs are not left out. The gathering pace of industrialisation in the North
America and Western Europe in the early 19th Century, which had
manifested to a gigantic venture, which the whole world cannot dare. In
perspective is the Cable News Network (CNN) established by TED Turner in the
United State of America, which started with about $5,000 Operating within a
mini block of flat in the early ninety, could hardly manage the whole of the
earth for its operations due to the rate of US expansion.
Growth in Nigeria Small Scale business has a
restricted. Immediately after independent, the orientation of people towards
work and earning a living with diverted to secure employment with the
government or in the private sector; people were not encourage to establishing
their own business and farming ventures were mainly subsistence.
Lack of education and enlightenment from the
government is assured to have caused this problem. In the recent past, the
unfavourable economic problem, which could be partially linked to the unstable
political situation, stand as the major obstacle for the establishment and
survival of the small-scale business and it has also brought about retarded
growth to the existing ones.
The
problem of unemployment and the need for self-sufficiency and
self-actualisation necessitate the need for financing small scale business. The
main problem for the establishment and maintenance of small scale business is
finance. It has been observed that, many prospective investors do not know the
types and source of financing available to them and other means of raising
funds for the survival of their business. Some of the types of finance
available to them are namely.
v Ordinary Share
Capital: This type of finance is acquired
through the stock exchange market, where prospective subscribers would be
members of the company if they succeeded in acquiring the shares of the
company.
v Preference
Share Capital; This is also acquired through the
stock market, in this security will be entitled to a fixed interest on their
capital if the company makes profit except for cumulative preference share
where the interest will be in accumulation until the company makes profit.
v Debenture Stock: This is a kind of loan to the company, which carries
a fixed rate of interest they can be redeemable or irredeemable as the case may
be.
v Loans and
Overdraft: this may be acquired from the
Banker to the Company; it helps in the maintenance and survival of the
business.
v Ploughing back
of profit: this is a situation where profit
of the last accounting years is reinvested into the business in order to expand
the financial base of the venture.
v Asset Leasing: This is of two types, the first one involves
operating lease where the ownership will be rested on the lessor, which the
lessor will have the final possession after the completion of the payment. The
second one is the finance lease where the ownership and maintenance of the
asset is rested with the lessee, only the lessor will be paying the finance
charges periodically.
v Hire Purchase: this helps the compound to acquire assets where the
arrangements the company can now spread the paying for the asset over some
periods of time.
v Purchase
Arrangement; this involved purchasing on credit
from customers.
1.2 STATEMENT
OF THE PROBLEM
It
will be pertinent to emphasise the problems that could be encountered in the
study. This stem from the definitions of what one could be describe as a small
scale business.
The terms Small Scale Business could be said to be
ambiguous or subjective. It depends on the perspective from which one is
looking at it. The government itself has not given a specific definition.
Definition also varies from one Bank to the other (Commercial and Merchant
Banks) even within a bank itself there has been diverse definition. A
definition given by the Corporate Finance Department is quite different from
that given by Loans Advances Department. The factors, which could be
responsible for the variability, could be traced to inflation, time and market
forces.
Small scale business financing could be the financing
of a new project or provision of capital for an existing company. It could be
floating of an entirely new business venture.
In case of
a project that would be embarked upon for expansion purposes, one would have to
determine its impact of the effective performance of the firm.
Furthermore, in case of a new business venture, one
will need to show how feasible and viable the venture will be by making
available the feasibility report, projected cash flows or the estimated profit
and loss account.
The most important of all these problems however, is
that of finance. In deed, it could be rightly said that all other problems
facing small scale project emanates from lack of finance. Small scale projects
are usually faced with the problem of where to obtain funds, whether commercial
banks or merchant banks or other specialised financial houses.
It should however be noted that the funds required for
a particular project could be raised from various sources. If this happens, a
situation of capital mix is said to be in existence. Since each sources of
income has their associated costs, which will be different from other source,
and where there is capital mix, the company should ensure that they obtain the
best possible combination of the various sources of capital.
Another feasible problem is that of collateral and
high interest rate in securing the needed finance. All these problems would
however be dealt with in the main text of this project.
1.3
PURPOSE OF THE STUDY
The purpose of this study is to evaluate the various
sources of finance to small and medium scale enterprises and its impact on
economic growth and development.
RESEARCH QUESTION AND HYPOTHESIS
It is known that small scale business
finds it difficult to raise funds, this form part of the basis of this research
study, and the economic implication of finance to small scale business.
However, I shall within the scope of this study test
the following hypothesis;
v What are the sources of fund to the SMES.
v When finance is provided for small
v scale business,
what effect does this has on employment generation.
v What effect does activities of small scale business
has on total output of an economy.
v Does financing small scale business in an economy lead
to increase in income of other sector of the economy.
v What type of fund weather long, short, medium is
available to the
SMES.
v What impacts the fund soured on: input utilization in
the economy,
Linkage within the sectors.
1.4 SCOPE
OF THE STUDY
For an adequate discussion to be made on the issue of
small
Scale business financing, it is important to explain
the definitions of
Small scale business; a source of finance, the
government polices as well as build a model to explain its impact on economic
growth.
Restriction shall however be made as
stated above to small scale business whose total fund needed not exceed two
million, five hundred thousand Naira (N2.5m)
either in floating a new business venture or for expansion of an existing
business. A general equilibrium model would be used for the analysis.
1.5 LIMITATION
OF THE STUDY
In this, I will limit myself to business whose total costs
do not exceed two million, five hundred thousand Naira (N2.5m). Another limitation could be data because most finance has
might not be favourably disposed to information dissemination. Anytime, we will
rely mostly on secondary data for CBN and FOS.
1.6 DEFINITION
OF TERMS
v FINANCING: This is the act of raising money necessary to
organise, re-cognise or extend an enterprises, whether by the sales of stocks,
shares, bonds, notes and otherwise.
v PROJECT/BUSINESS
FINANCING: This term is used to describe a
variety of financing arrangement for individual investment business. Often, a
separate legal entity is formed which owns project for repayment of their loan
or for the return on their equity small scale business. These are business
whose total assets do not exceed two million Naira.
v LOAN
SYNDICATION: Loan syndication called is defined
as a joint venture or a temporary association of some specific business
projects. It could also be define as the coming together of financial houses to
finance some specific business projects.
v OPTIMUM MIX OF
THOSE SOURCES OF FINANCE: Since a project
could be financed from various sources and each source of funds has its
associated cost. After identifying the various sources of finance and their
cost, the next step is to obtain the optimum mix of the sources of finance,
which means the best possible structure.
v DISCOUNTED CASH
FLOW: This is the case flow expected to
arise from a project as discounted to allow for the time which has to elapse
before the flow is received.
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