Firms’ Performance and Lending Constraints in Nigeria

Abstract

This study analyses how banks’ lending affects firms’ performance and identifies some of the factors that have constrained finance to the Small and Medium Enterprises (SMEs) sector, both on the supply and demand sides. The article is based on the case study of sample of 260 SMEs and interviews with managers of commercial banks in Ondo State, Nigeria. The results show that the firms that received bank loans performed better than those without loans. The study reveals that firms were reluctant to obtain loans from the banks because of high interest rates and stringent lending policies. The banks were also constrained due to the poor credit worthiness of the fi rms. The government should formulate policies that will compel banks to relax their stringent regulations which discourage borrowings. There should be entrepreneurial education for the entrepreneurs on financial recordings and business management.