Small Business Financing in Nigeria: An Investigation of the Angel Option

By Moses, Olayinka; Adebisi, Joseph Femi | Canadian Social Science, March 1, 2013 | Go to article overview

Small Business Financing in Nigeria: An Investigation of the Angel Option


Moses, Olayinka, Adebisi, Joseph Femi, Canadian Social Science


Abstract

Small businesses are often faced with funding challenges in developing economies which constraints their growth and long term survival. This study examines the existence and role of business Angels as a source financial, human and social capital to overcome challenges of funding for small businesses in Nigeria. The research aims to strengthen the framework that seeks to provide detail understanding of the benefits that business angels can bring to small business in developing economies, considering the gap that exists in this regard. Data for the study were obtained using questionnaires and analyzed using Kolmogorov-Simirov (KS) test. The finding reveals, that Angel financing is a viable alternate source for financing small businesses in Nigeria. Recommendations proffered include the need for publicity on the activities of angels to support other government programmes on small business financing. There should also be an enabling environment for angel venture networks to participate in economic growth and development of small businesses in Nigeria.

Key Words : Small business; Business angel; Funding challenges; Financing

(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

Financing small business remains one of the most important factors determining the survival and growth of small businesses particularly in developing economies. Suffice it to stress that accessing capital for new entrepreneurial pursuit has not always been an easy task in Nigeria. Although many Nigerian entrepreneurs have recorded successes in the area of business but the obvious is that more entrepreneurial dreams are aborted at conception due to financing constraints. Small businesses have been widely acknowledged as the spring board for sustainable economic development. In Nigeria, since the 1970's there has been an increased interest in the promotion of small businesses due to the inability of government and mega organizations to employ the nation's teeming populace. This has strengthened individuals' selfsustaining and self-reliant perspective to the recognition that dynamic and growing small businesses can contribute substantially to a wide range of national developmental objectives. Therefore, strengthening the debate that one way to alleviate poverty could be to increase the productivity of those engaged in small scale production (Aftab & Rahim 1989). The small business community in Nigeria has assumed universal recognition and relevance based on its potentials for creating self-employment, balanced development of regional utilization of available localized resources. They play active role in generating and providing employment opportunities at lower capital cost

Entrepreneurs for small business in developing countries often cite lack of capital as a major constraint to entrepreneurial development, a notion often referred to as "capital illusion". This lack of access is often associated with financial policies and bank practice that make it hard for banks to cover the high costs and risks involved in lending to small business. By their nature, small and medium scale business require long term capital for investment, because they have long gestation periods. So any capital mismatch by these enterprises in terms of loans can have serious consequences, especially in an unstable economic environment (Osisioma 2004). Financing has also been identified in many small business surveys as one of the most important factors that determine the survival and growth of small enterprises (Moses, 2010). Mambula (2002) acknowledging this affirms that small businesses in Nigeria suffer from the dearth of funding as top most amidst other constraints.

Access to finance allows small business to undertake productive investment to expand their business and to acquire the latest technologies, thus ensuring their competitiveness and that of the nation as a whole. This limitation affirms that not many opportunities are available to small starters. …

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