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)