Almost every research on small scale business is with the cliche; inadequate capital or lack of finance for start ups and for expansion of a business. But it will interest you to note that most of such postulations are based on demand side assumptions and sometimes carries no perspective of supply side policies concerning loans for small businesses.
Our concern therefore is to know the reasons behind why most small business entrepreneurs lack access to finance from the conventional sources of credit to either start or expand their businesses.
Having said that, in the course of my final year project on small scale businesses I discovered that most of the entrepreneurs lack the managerial and technical expertise to run their businesses. This position was confirmed by Izedonmi and Olumide in 2007. They both agreed that inadequate arguments are unfounded. They said that capital inadequacy is a misconception of business capital. They further submit the forms of business capital as knowledge capital, technical capital and money capital are all needed by a proprietor for his effective performance.
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Bearing this in mind, it is also worthy of note that, the cost and challenges leading to the acquisition of funds is cumbersome but one need to do his or her part in order not to give room for excuses or just complaining about it. On this backdrop, it has become pertinent to observe some reasons why loan applications of small businesses are not granted. And also, this will equip proprietors to do what is required before loan applications are submitted.
The reasons are briefly stated below:
1. When the borrower's character, confidence, stability and personality are poorly rated by the lender.
2. When the purpose of the loan to be taken is not clear. Lack of detailed explanation of the purpose of the loan will always lead to refusal by the lender. E.g whether the loan is for buying a particular asset, or whether it is to expand existing production line must be stated clearly.
3. Lack of business plan. No lender will give out funds without knowing how the loan will be utilized and how it will be be repaid.
4. If the borrowers not financially committed in the business. His personal capital investment in the business is critical to the approval of the loan.
5. For existing venture, if past performance of the business is poor when compared to similar competing businesses.
6. Insufficient collateral. For example, presenting an NYSC certificate for NGN10m loan would be considered insufficient.
7. If the business plan is not viable or feasible.
8. And finally, If ones past credit history is not straight lenders find it difficult to grant such loan application.
On a final note, do these and your credit needs shall be near over.
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