Small and Medium Enterprises play a pivotal role in the economic growth of any nation, thereby increasing productivity, GDP, and employment opportunities. One major challenge to the growth and development of this sector of the economy is poor funding. It is on this prem-ise that this research is based upon, finding the external funding possibilities for SMEs in Nige-ria.
This study briefly talks about the importance of the SME sector to the Nigerian economy and also extensively explains the major external funding possibilities available to SMEs in Nigeria. Funding initiative by governments (Federal and States) as well as those of Non-Governmental Organizations, and International Development Agencies were also adequately considered.
The qualitative method was used in this research, thereby data was collected from both pri-mary and secondary data. The primary data was obtained by interviewing two key officers of a SME business in Nigeria. Two senior officers at two lending institutions were also inter-viewed. Most of the secondary data used in this research were obtained by consulting arti-cles, journals and other publications.
During the course of this research study, the researcher found that there are numerous sources of external funding possibilities with relatively cheap, available and accessible medi-um to long term funds for SMEs in Nigeria but are not aware of them because their existence and services were not adequately given enough publicity by the media.
The findings identified new initiatives springing up to support the sector. In the light of the above, the SMEs need to get acquainted with the knowledge of external funding initiatives available to them. It should also be noted that the entrepreneur’s attitude towards external funding should be taken into consideration.
The SME sector is a very important but largely neglected component of the economy of Nigeria. It makes much smaller contributions to the Nigerian GDP compared to other countries at the same levels of development as Nigeria. SMEs in Nigeria have great potentials for growth and could easily become major contributors to the GDP of Nigeria, if the government begins to demonstrate better commitments to building and developing strong SME sectors of the economy by instituting and implementing better access to finance and incentives, basic infrastructures, adequate legal and regulatory policies, and developing domestic knowledge base and competencies (Oyelaran-Oyeyinka, 2007). According to Oyelaran-Oyeyinka (2007), SMEs in Nigeria also constitute about 90% of the number of businesses in the manufacturing and industrial sectors and approximately a mere 1% of the country’s GDP compared to 40% in Asian countries and 50% in the United
States or Europe. In most developed countires,enterprises within the SME sub sectors gross about 95%, with Japan having 80% of its industrial labour force, Germany 57% and 46% in the USA where small businesses contribute 39% of the national income (Wang,Walker & Redmond 2011) and thereby contributing substantially to income, output and employment.
The European Economic Commission journal published in May 2003, defines SMEs as an enterprise with employees less than 250; an annual turnover of not more than 50milion euros and a minimum asset base of 43 million euros. Unlike what obtains in developed economies like Europe and United States Of America, there is no clear definition for SME by government institutions, private financial institutions or development agencies In Nigeria. Going by the various definitions given by government agencies such as Central Bank of Nigeria (CBN), Federal Ministry of Industry, and National Association of Small & Medium Scale Enterprises (NASME), Oyelaran-Oyeyinka (2007) summarised SME as a business engaging less than Three hundred (300) employees and an annual income below N100,000,000 (One hundred million Naira), which is equivalent to about €448,430 at the official Cental Bank of Nigeria exchange rate of N223 to €1.
One major challenge that is preventing SMEs in Nigeria from achieving the kind of success mentioned above is that of business finance which affects them at various stages of their business cycle. Whether an SME is starting, stabilizing, growing, expanding or interna-tionalizing, the need for accessible and affordable medium to long term funding is a ma-jor factor in the success of SMEs and their ability to positively impact the economy of Ni-geria.
In the light of this, business capital acquisition for most entrepreneurs in Nigeria, are limited to personal contribution through savings and borrowings from friends and family.
This source of fund acquisition is not suitable for business growth and expansion in the long run.
BusinessDictionary.com (2015), defines Funding as the provision of financial resources to finance a need, program or project. Funding is an integral part of any business organisation either large or small scale. In Nigeria, a major challenge being faced by SMEs is how to source external funding for business growth. In view of this, the main research question will be what are the source for external funding possibilities for SMEs in Nigeria?
1.2Research Questions and Objectives
In the following, each research question is discussed with the corresponding research objectives.
1. What are the major sources of external funding available to SMEs in Nigeria? Objective: To identify and gain an understanding of the major external funding options available to SMEs in Nigeria.
2. What processes are involved for SMEs to apply for external funding in Nige-ria?
Objective: This is to give an overview of the steps needed to be taken in order to apply for and get external fundng in Nigeria.
1.3Significance of the study
· This research helps to give a clear and up to date view of external public funding sources available to SMEs in Nigeria.
· The results/conclusions of this research hopefully will help SMEs in Nigeria success-fully apply and secure external funds finance.
· The research thesis will also serve as basis for further research into external fund-ing possibilities for SMEs in Nigeria.
1.4Limitation of the study
There were three (3) major limitations to this research study and the researcher tried to make the best decisions in order to overcome.