This study was set to investigate the financial challenges of small scale enterprises in Nigeria. The sources of materials for the study were primary, and the data were collected by the use of structured questionnaires which were designed and administered to SME operators. Sixty respondents were recruited for the study and questionnaires were returned at a response rate of 85 per cent. Data were represented in percentage and hypotheses were tested using chi-square. The study showed that most of the SMEs were not managed by professionals. It also showed that operators of SMEs had difficulties in acquiring financial aids from banks hence most of the respondents turned to family and friends as sources of financial assistance. Findings from this study also showed that no standing government policies were helpful in their small-scale business enterprises. This study proved that poor financing of SMEs affects its productivity. In view of the findings, it was recommended that banks and other financial institutions should organize educational workshops to enlighten SME operators on ways to ensure efficient management. It was also recommended that there should be a national policy on SMEs by the government in respect of funding among others in order to sustain the SMEs to grow and develop in Nigeria

1.0                                                     Introduction
1.1      Background to the Study
Perhaps, no other development strategy has enjoyed as much prominence in Nigeria’s development plans as the Small and Medium Scale Enterprises (SMEs) development strategy. In recent years, particularly since the adoption of the economic reform programme in Nigeria in 1986, there has been a decisive switch of emphasis from the grandiose, capital intensive, large scale industrial project based on the philosophy of import substitution to micro and small scale enterprises with immense potentials for developing domestic linkages for rapid, sustainable industrial development. Apart from their potential for ensuring a self-reliant industrialization, in terms of ability to rely largely on local raw materials, small and medium enterprise, are also in a better position to boost employment, guarantee a more even distribution of industrial development in the country, including the rural areas, and facilitate the growth of non-oil exports.
According to the National Council on Industry (1991) cited in Olajide, Ogundele, Adeoye and Akinlabi (2008), micro/cottage industry is an industry whose total project cost (excluding cost of land but including working capital) is not more than N500, 000:00 (i.e. US$50,000); while small scale industry is an industry whose total project cost (excluding cost of land and including working capital) does not exceed N5m (i.e. US$500,000).
Small scale business started gaining prominence in Nigeria in the early 1970s when many personal enterprises started springing up. Before this time, agriculture dominated the economy. There were a lot of agricultural small holdings before and during the emergence of oil boom. Over 75 percent of agricultural holdings were managed by the small farmers which comprise mainly of family business. Government agricultural holdings were not more than 10 percent.
Small scale businesses are catalyst in the socio – economic development of any country. They are a veritable vehicle for the achievement of national macroeconomic objective in terms of employment generation at low investment cost and enhancement of apprenticeship training. In Kenya, for instance, Kombo, Justus, Murumba and Makworo (2011), submitted that “micro and small scale entrepreneurs who include agriculture and rural businesses have contributed greatly to the growth of Kenyan economy”. The sector contributes to the national objective of creating employment opportunities, training entrepreneurs, generating income and providing a source of livelihoods for the majority of low income households in the country accounting for 12-14% of GDP (Republic of Kenya, 1982, 1989, 1992, 1994). The catalytic roles of micro and cottage businesses have been displayed in many countries of the world such as Malaysia, Japan, South Korea, Zambia, and India among other countries.
Small scale enterprises contribute substantially to the Gross Domestic production (GDP), export earnings and employment opportunities of these countries. Small scale enterprises (MSEs) have been widely acknowledged as the springboard for sustainable economic development. Apart from the fact that it contributes to the increase in per capital income and output, it also creates employment opportunities, encourage the development of indigenous entrepreneurship, enhance regional economic balance through industrial dispersal and generally promote effective resource utilization that are considered to be critical in the area of engineering economic development (Tolentino, 1996; Oboh, 2004; Odeh, 2005).
Small scale enterprises in Nigeria have not performed creditably well and they have not played expected significant role in economic growth. With the realization of the potentials of the small scale enterprise, governments at different level in Nigeria have put up a lot of support programmes to promote and sustain their development. It is believed that massive assistance; financial, technical, marketing and managerial from the government are necessary for the SMEs to grow.
In order for the SME’s to continue to fulfil the above and much more, they need access to finance to carry out their business operation and expansion. The seeming lack of finance for SMEs is not only retarding their expansion but also the growth of the nation’s economy. Macroeconomic conditions in Nigeria since the beginning of the 21st century has severely constrained private sector access to credit. High levels of government borrowing pushed interest rates up and crowded the private sector out of the financial markets.
In view of the perennial financing challenge faced by these SMEs, many interventions have been made by the government through its recent monetary policy and financial sector reforms. These have substantially increased banks’ lending to the private sector but limited access to credit, high interest rates and prohibitive collateral requirements still pose significant constraints to the growth of many SME’s.
Another area of constraint, which tends to limit the assess to finance by SMEs, is lack of information. Small business owners most often possess more information about the potential of their own businesses but in some situations it can be difficult for business owners to articulate and give detailed information about the business as the financiers want. Additionally, some small business managers tend to be restrictive when it comes to providing external financiers with detailed information about the core of the business, since they believe in one way or the other, information about their business may leak through to competitors (Winborg and Landstrom, 2000).
When SME sector does not have access to external funds for investment, the capacity to raise investment per worker, and thereby improve productivity and wages, is seriously impaired. The difficulties that SMEs experience can stem from several sources. The domestic financial market may contain an incomplete range of financial products and services. The lack of appropriate financing mechanisms could stem from a variety of reasons, such as regulatory rigidities or gaps in the legal framework. Moreover, development economists increasingly accept the proposition that, due to monitoring difficulties such as
To evaluate the efficiency of schemes for promoting SME finance, an effectual SME financing scheme should provide opportunities for SMEs to meet their financing needs and must maintain the profitability of the enterprise, or on the eventual sale of investments or collection of loans that would provide cash for later investments. It is worth noting that among the resources needed for the production of goods and services, there are many things that set capital (finance) apart from the other inputs. Fixed Assets such as machinery and equipments, land and buildings, just to mention a few, provide benefits that derive from their physical characteristics. Unfortunately, the same thing cannot be said about the financial resources used to run a business. The acquisition of financial resources leads to contractual obligations. Small enterprises in developing countries typically, lack access to finance as an important constraint on their operations. This lack of access is often associated with financial policies and bank practices that make it hard for banks to cover the high costs and risks involved in lending to small firms.

1.2         Statement of the Problem
Despite the role of SMEs in the Nigerian economy, the financial constraints they face in their operations are daunting and this has had a negative impact on their development and also limited their potential to drive the national economy as expected. This is worrying for a developing economy without the requisite infrastructure and technology to attract big businesses in large numbers.
Most SMEs in the country lack the capacity in terms of qualified personnel to manage their activities. As a result, they are unable to publish the same quality of financial information as those big firms and as such are not able to provide audited financial statement, which is one of the essential requirements in accessing credit from the financial institution. This is buttressed by the statement that privately held firms do not publish the same quantity or quality of financial information that publicly held firms are required to produce. As a result, information on their financial condition, earnings, and earnings prospect may be incomplete or inaccurate. Faced with this type of uncertainty, a lender may deny credit, sometimes to the firms that are credit worthy but unable to report their results (Coleman, 2000).
Another issue has to do with the inadequate capital base of most SMEs in the country to meet the collateral requirement by the banks before credit is given out. In the situation where some SMEs are able to provide collateral, they often end up being inadequate for the amount they needed to embark on their projects as SMEs assets- backed collateral are usually rated at ‘carcass value’ to ensure that the loan is realistically covered in the case of default due to the uncertainty surrounding the survival and growth of SMEs (Binks et al., 1992).
These are some of the factors already acknowledged by some researchers as blocking most SMEs in accessing credit from the financial institution in the country.
SMEs in Nigeria do not also have the luxury of picking a financing scheme that will be appropriate for their businesses. The major type of financing open to them is debt financing from the financial institutions, which most often comes with a long list of requirements that most SMEs find them difficult to meet. The other type that is Asset financing, aside the long list of criteria also requires operators of SMEs to provide 50% of the funds and the financing institution providing the other half to fund the purchases of the assets. This type of financing do not allow for growth of the SMEs sector since they are all short term in nature.

1.3     Research Questions
The following are the research questions of this study
i.                   Do qualified financial personnel manage the financial activities of SMEs?.
ii.                 What are the sources of capital for SMEs
iii.              Do SMEs meet up with the collateral requirements of financial institutions?
iv.              Are all the financial schemes provided by government available to SMEs

1.4      Objectives of the Study
This study aims to examine the challenges of financing small scale business enterprises in Nigeria. It also aims at finding ways of making small scale enterprises more effective in order to enhance to economic development of the nation’s indigenous technology.
Moreover, in this study, attempt will be made to achieve the following:
       i.            To examine the availability of qualified financial managers in SMEs in study area.
     ii.            To assess the sources of capital for SMEs
  iii.            To investigate the problems encountered by SMEs in meeting with collateral requirements from financial institutions.
  iv.            To ascertain the financial scheme available from government and other donor agencies, and the schemes commonly embraced by SMEs
     v.            To recommend measures for reducing financial challenges associated with SMEs

1.5   Research Hypotheses
Two hypotheses are formulated and tested in this study:
Hypothesis 1
H0: There are no difficulties faced by SMEs when accessing finance from financial institutions
H1:  SMEs encounter numerous problems when accessing finance from financial institutions.
Hypothesis 2
HO:  Poor financing does not affect productivity of SMEs.
H1:  Poor financing does affect productivity of SMEs.

1.6      Significance of the Study
Development and growth of the Nigeria’s economy through the small scale enterprises is crucial at this era, hence the nature of this study is timely. This study will be of immense benefits to cottage enterprises as well as other small and medium scale enterprise. Investigating challenges of financing SMEs in Nigeria especially with accessing credit or funding from financial institutions from the perspective of the operators of these SMEs is crucial since it would present the problem from the perspective of the SMEs thereby making it a base line study for policy interventions by state agencies, development partners and non-governmental organisation with missions to develop the SME sector. Furthermore, this study will serve as a secondary data to future researches on small and medium scale enterprises.

1.7    Scope of the Study
The scope of this study is restricted to small and medium scale enterprises. Selected SMEs in the rural areas of Edo Central Senatorial District served as the small and medium scale enterprise employed for this study. Data for the study will be harnessed within a period of two weeks.
The researcher will place emphasis on objective of the study, and other related matters as they affect the small scale enterprises

1.8     Limitations of the Study
A good number of factors made the study difficult. Notably, is; 1.The time factor, due to the limited time, 2; Small sample size - the researcher based this study only on few selected small business enterprises in the study area.
However, the researcher within the limits of the above constraints was able to source for and obtain sufficient date for the study. The expected result of the study will be robust and significantly representative of the population.

1.9     Organisation of the Study
The first chapter contains the background which introduces the topic and touched on some of the issues with regards to SME and its financial challenges. The literature review that forms the second chapter looks at SMEs , various financing schemes available to SMEs and the challenges these SMEs faced in accessing credit in Nigeria. Thirdly, the method used in gathering the data forms the third chapter. Chapter four contains the data analysis, presentation and discussion of the findings. The conclusion and recommendations will form the chapter five of this thesis.

1.10    Operational Definitions of Terms
Small Scale Enterprise: - The definition of small scale enterprise varies with people and countries such that it is better defined based on the characteristics. In the Nigerian context, small scale enterprise is any processing, serving or manufacturing industry with an investment in machinery and equipment above N500,000 [Waboi, 1987]. According to the centre for management development in a policy proposal to Federal Government in 1982, A small scale enterprise is a manufacturing, processing or service enterprise involved in a factory or production type operation employing up to 50 full time employees, investment in plant machinery are utilized in its operation.
Management: - According to Akpala [1990] Management is the process of combing and utilizing an organization input [men, materials and money] by planning, organizing, directing and controlling for the purpose of producing output [goods and services].
Entrepreneur: - According to Hagen, an entrepreneur is an individual who conceives the idea of business, design the organization of the firm, accumulates capital, recruits labour, establishes relations with supplies, customers and the government and converts the conception into a functioning organization business.
Opportunity: An opportunity is a potential gainful situation that must be recognized and exploited, an opportunity has the qualities of being attractive, durable and timely. It is anchored in product or services which creates or adds value for its buyers or end users.
Development: This entails growth of the business, increases in goods and services and t he improvement of lives of the citizen.

Binks, M.R., Ennew, C.T. and Reed, G.V. (1992). Information Asymmetries and the Provision of Finance to Small Firms. International Small Business Journal, 11(1). 35-46.
Coleman, S. (2000). Access to Capital and Terms of Credit: A Comparison of Men and Women-Owned Small Businesses. Journal of Small Business Management, 38(3). 37-52.
Kombo, A., Justus, W., Murumba, N. and Makworo E. (2011), An Evaluation of the Impact of Risk management Strategies on Micro-Finance Institutions’ Financial Sustainability: A case of Selected Micro finance institutions in Kisii Municipality, Kenya”. Educational Research, 2 (5) 1149-1153.
Oboh, G.A. (2004) Contemporary Approaches for Financing Micro, Small and Medium Enterprises”. Conference on SME held at the International Conference Centre, Abuja, Nigeria. 2-15.
Odeh, O. (2005). The Impact of Federal Government Reform Programme on the Development of the SMEs Sector. A paper presented at the National Seminar on “Facilitating Easy Accessibility to the SMEEIS Funds by SME operators. Lagos, 10 – 11.
Olajide, O.T., Ogundele, O.J.K., Adeoye, S.O. and Akinlabi, B.H. (2008). Small and Medium Enterprises (SMEs): An Appropriate Medication for Nigeria’s Economic Predicament in the Global Competitive Economy”. Akungba Journal of of Management, 1 (1& 2). 173-193.
Tolentino, A. (1996), Guidelines for the Analysis of Policies and Programs for Small and Medium Enterprise Development Enterprise and Management Development. ILO Working Paper.

Winborg, J and Landstrom, H (2000). Financial Bootstrapping in Small Businesses: Examining Small Business Managers’ Resource Acquisition behaviour – Journal of business venturing 16, 235-254.

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