Effect Of Access to Credit on Financial Performance of Small and Medium Scale Enterprises in Nigeria

Abstract

 In Nigeria, where Small and Medium Enterprise (SMEs) contributes substantially to employment generation and economic development, access to credit facilities is a key factor that determines the growth and sustainability of SMEs. Despite financial interventions the contribution of credit access to the financial performance of SMEs is not a clear issue. This study examined the effect of access to credit measured by Credit to SMEs (CSME), Lending Rate (LR) and Availability of Collateral Security (ACS) on Return on Assets (ROA) of SMEs in Nigeria. The study was quantitative, secondary data and regression analysis was used for the study to analyze the relationship between the variables. The results indicated that lending rate had a significant impact on ROA (t = -4.348303; p = 0.0002) which means that a lowering of the lending rate significantly affects the financial performance of the SMEs. Similarly, credit for SMEs had a significant positive effect on ROA (t = 2.705715; p = 0.0121), implying that improved access to credit helped increase asset utilization and profitability. The finding of the study indicated that the availability of credit facilities positively affects the financial performance of SMEs operating in Nigeria with increased credit facilities and better terms of credit facilities. Thus, financial institutions and policy makers were recommended to make credit more available to SMEs at reasonable interest rates as well as to look into other financing avenues to minimize the need for excessive collateral requirements. 

Keywords: credit to small and medium enterprises, collateral security, financial performance, lending rate, return on assets