The need for finance to either start a business enterprise or expand

Categories: BusinessFinanceMoney

The need for finance to either start a business enterprise or expand its frontiers cannot be underestimated. It is to say that, just as business ventures are anticipated to live and progress into the unforeseeable future, money among others is expected to be the building denominator. For this reason, financial institution like Multi credit over the years has supported individuals and corporate organisations to establish their businesses. And for the fact that, the growth of businesses according to Nugent (2001) ranks high considering the constant need for employment creation and poverty reduction, makes giving of loans reasonable.

Credit facilities however, given to businesses ever since has been a form of pecuniary means ostensibly directed to needy business operators to build up their ventures.

In furtherance to the above, it is apparent that, businesses whether small or big have played their part and are still at it in developing the nations and in creating employment. It can be understood that, not only do they make available employment and income opportunities to the large unemployed but creates adequate financial markets.

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It is in the same way, financial institutions have contributed indispensably in the growth of businesses, thus industry productivity and economic growth. Financial institutions have also provided a sound means of exchange to ease trading and promote mobilization of resources through savings and allocate resources to activities with highest returns, monitor investments and exert corporate governance, and spreads risks by offering a diversity of financial instruments (Nigussie, 2012). This undeniably has made most businesses lead the forefront of technological innovations and other imports and export diversifications.

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To most business operators, accessing credit facilities denotes their working capital and to others a means to expansion which according to Bhunia (2010) constitutes a major concern during financial decision making. To this extent Olomi (2008) interpreted that, enterprises with limited access to the capital markets tend to rely on bank loans to finance their operations. There is therefore no doubt, why having access to finance is a necessary factor when in building a business, but its repayment often poses challenges.

Despite the foregoing, access to loans of late has become a challenge because collaterals and unsuccessful search for guarantors, non-payments of loans, administrative lapses have posed roadblocks for accessing loans. To this extent Naude and Havenga (2004) attested that most business entrepreneurs struggle with accessing finances from banks. On this premise, Fatoki and Garwe (2010) classified the lack of accessibility to finance as the second most reason for the low firm establishment and its breakdown. To affirm this Nkuah, Tanyeh, Gaeten, (2013) emphasized that, though considerable lending are made to businesses, but restricted access to credit and high interest rates and demand for collaterals continue to limit their growth particular the small medium enterprises. By inference, it can be construed that, the key factor limiting the advancement of the business sector undeniably can be traced to accessing and repayment of loans.

1.2 Statement of the Problem

Undeniably, finance for business is of essence but accessibility to it and repayment has become prime challenge upon which all other challenges invariably hang. According to Mutezo (2005), every business activity is held back by the lack of access to finance. The accessibility to bank finances has always become major challenge particularly during the creation of new business ventures and also at later times where further inflows of capital to support expansion and growth become relevant (Nieuwenhuizen and Groenewald, 2004). Report from African Development Bank Group Report (2012) maintained that, businesses particularly Small and Medium Enterprises constitute the real group to realize all-encompassing growth because they contribute considerably to the income generation and job creation. However, their ability to access finances is time and again noted as one of the foremost challenge.

From the viewpoint of Cassar (2004) inaccessibility of finance denotes a prime cause constraining the growth and success businesses. A study undertaken by Naude and Havenga (2004) showed that most entrepreneurs for instance go through challenges in attempt to access finances from banks because of unwarranted red tape and managerial burden. They have realised and indicated that, financial institutions seldom support start up businesses because of the lack of business record of non repayment of loan. In another finding of Rogerson (2006) it was found that, inaccessibility to finance represent the most important confront upon which all other challenges are congruent on. Mutezo (2005) also in his study reported that conformist financing mechanisms do not permit for cost effective provision of finance to large numbers of entrepreneurs or small medium enterprises (SMEs) looking for small quantities of finance. He argued further that, as a result of poverty and lack of assets most people do not have the collateral needed to access formal financing. This according to Mutezo (2005), makes entrepreneurial works activity vulnerable because access to finance which is to an extent also premised on the structure of the financial sector.

Like Multicredit, lending has become a risky business, threatening the release of credit facilities to its borrowers because repayment of loans can rarely be guaranteed. Accessing and repayment of loan is one of the grave issues of contention between financial institution like Multicredit and borrowers. It has become critical to arrive at better financial challenges inherent in lending and borrowing which threatens their stability. Micro-credit institutions in Kumasi have faced the problems of low loan repayment as the trend of uncollected loans from the customer has become a problem. This trend is an indication that Micro-credit experiences poor loan repayment thereby affecting their further disbursement In this context, providing loans therefore to borrowers has increasingly and rapidly been calling for better financial innovations that merge careful finance principles with efficient screening and monitoring systems.

In furtherance to the foregoing, Fin (2006), puts forward that only 2% of clients are able to access bank loans. Also, according to Foxcroft (2002), 75% of applications for bank credit by loan clients are rejected. All these are attributed to the extent of default by clients which Bayang (2009) believed are because clients are often saddled with pressing economic problems arrayed from extravagant lifestyle and paying various bills among others, a practice which makes loan repayment difficult. This makes it clear that, lending is a risky business that could result in legalities and impounding of assets, because repayment of loans cannot be entirely guaranteed. For this reason the study has become imperative to assess the challenges that clients of Multi-credit face in accessing and repayment of their loans.

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The need for finance to either start a business enterprise or expand. (2019, Nov 25). Retrieved from https://studymoose.com/the-need-for-finance-to-either-start-a-business-enterprise-or-expand-example-essay

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