2.1.5.5 Funding of Small Business
”Most small firms will never be able to raise all the funding they would like from banks and other institutions. In this crude sense there will always be a deficiency in the funding of the sector equal to the difference between the total demand for funding and that part of this demand which qualifies for funding support” (Hamilton and Mark, 1998). As a result, a clear and present challenge for operating and intending small business is sourcing of funds. Small business may start up from personal savings, gifts from friends and relatives and sometimes loans. Levy in 1993 reported that smaller enterprises have limited access to financial resources compare to larger organisations and he discussed the impact of his findings in economic growth. According to Cork and Nisxon, (2000) poor management and accounting practices have hampered the ability of smaller enterprises to raise finance. This is coupled with the fact that small businesses are mostly owned by individuals whose personal lifestyle may have far reaching effects on the operations and sustainability of such businesses. As a consequence of the ownership structure, some of these businesses are unstable and may not guarantee returns in the long run. However, there is reason to hope because according to Liedholm et al. (1994), a large number of small enterprises fail because of non-financial reasons. Remmers et al. (1974) reported the debt/total assets ratio to be independent of firm size while Peterson and Schulman (1987) reported that debt/total assets ratio to first rise and then fall with size of firm. Irrespective of which side of the divide one is, the behaviour of loan granting institutions can be obviously predicted when they have a choice of granting loan facilities to either a big business with a good balance sheet or a small business with an equally good balance sheet.
In Nigeria, banks particularly the Agriculture Development banks are mandated to give loans to small business but the inability of most small business owners and intending entrepreneurs to present the required collateral remains a major setback.
It is common practice in the country for small business owners to organize themselves into cooperatives commonly called ”Esusu”, Members of an Esusu would generally contribute a fixed amount daily, weekly or monthly, to be pulled and then collected in turns to fund their business or personal projects.
For instance, Imo Self-Help Organisation (ISHO), Nsukka United Self-Help Organisation (NUSHO), Committee for Women in Development - Nigeria (COWAD), Lift Above Poverty Organization (LAPCO),Lagos, Development Exchange Centre, Kakeme, Bauchi (DEC), Country Women Association of Nigeria (COWAN), Alternative Development (Alter Dev), Women Farmers Association of Nigeria (WOFAN), and Farmers Development Union (FADU) focus mainly on poverty alleviating activities among the rural poor all over Nigeria”(Elumilade et al, 2006)