Financial Institutions’ Criteria and Mechanisms in Financing Small and Medium Enterprises in Plateau State, Nigeria

Abstract

The inability of small and medium enterprises (SMEs) to access funds from financial institutions has been identified as one of the major problems limiting their expansion horizons. This study assesses the criteria and mechanisms used by financial institutions when granting loans to SMEs. The data were sourced from the relevant financial institutions and analyzed by using different statistical tools. One of the findings revealed that the financial ratio and the internal control system accounted for 28.7% of the part of the conditions for granting loans to SMEs. Similarly, good working capital and the ease of asset conversion accounted for 94.5% of the criteria used by financial institutions to extend credits/loans to SMEs. Also, the educational background of SMEs’ operators significantly influenced the financial institutions’ choice of SMEs to finance. Based on these findings, the study recommends that there is a need for SMEs’ operators to align their business activities with financial institutions’ lending criteria.

Keywords

• small and medium enterprises
• liquidity ratio
• internal control system
• loan access
• financial institutions