Acquisition and allocation of funds is a central function in all business organisations, hence financial management plays considerable role in any organisations, any of the main problems facing effective management of small-scale industries is lack of basic financial skill needed to guide the business.  These skills include ability to raise capital, preparation of accounting records, financial control, credit management, risk management to mention just a few.


Provision of these skills to small-scale industries will assist in improving their performance.


The main purpose of this section is to briefly discuss these important areas of financial management.  Basically the section will address raising of funds, accounting and financing control, credit management required by small business operation.


All business firms have to be financed.  Each enterprise must own some combination of cash inventories, building, equipment and other properties called Assets.

Funds    must be raised b a business to acquire these assts.  Before raising the required capital, the entrepreneur must avoid under and over estimate of capital requirements.  Too much capital will lead to unnecessary high cost and inadequate capital affects the growth of a business.  Hence, an entrepreneur must seek for realistic capital needs.


The U.S. small business Administration has suggested the need for entrepreneur to answer the following question when deciding on realistic capital requirement.

·                    Why do I need this capital?

·                    How much do I need?

·                    When do I need it?

·                    How long will I need it?

·                    How can I obtain it?

·                    How can I repay it?

When a firm commences business, it requires funds to purchase assets, fixed and current assets.  Such funds are from its owners and later loan from creditors. 

As the business commences operation, profit its made and it may be returned in the business for further expansion.


The types and source of capital are many and varied.  Meanwhile, we may outline the main type of capital as:

a.           Permanent or long-term capital.

b.           Medium term capital

c.            Short term capital

As a general rule, the book of financing should be of permanent nature.  Temporary shortages in working capital can be made from borrowing and similar short-term funds.


Although, the main concern of this research work is external financing, there is also internal financing by means of retainer and earnings or ploughed bank profits depreciation and various forms of reserves that enable the business to borrow without recourse to external borrowing.

These firms of financing have been recognised to be the cheapest.


Title page

Certification                                                                                     i

Dedication                                                                              ii

Acknowledgement                                                                           iii

Abstract                                                                                           iv

Table of Content                                                                              vi      


1.0       Introduction                                                                           1

1.1       Statement of the Problem                                                      3

1.2       Objectives of the Research Work                                          4

1.3       Significance of the Study                                                       4

1.4       Scope of the Study                                                                 5

1.5       Limitation of the Study                                                 5

1.6       Research Methodology                                                          5

1.7       Hypothesis                                                                             5

1.8       Definition of Terms                                                                6




2.0       Small Business Organisation                                                8

2.1       Definition of Small Business                                                 8

2.2       Reasons for Owing/Starting a Small Business                    9

2.3       Ways of Owing a Business                                                    12

References                                                                              22



3.0    RESEARCH METHODOLOGY                                       24

3.1    Introduction                                                                           24

3.2    Method of Data Collection                                                     24

3.3    Method of Data Analysis                                                       27

          References                                                                              30



4.0   PRESENTATION AND ANALYSIS OF DATA                     31

4.1    Introduction                                                                           31

4.2    Analysis of Bio-Data                                                              31




5.1    Summary of the Findings                                                      41

5.2    Conclusion                                                                             44

5.3    Recommendation                                                                   44

          References                                                                              46






There are so many misconceptions about finance or capital, some thinks that when they get the fund and all will go well. There is nothing so disappointing as this. Too much emphasis has been laid on money capital than other forms of capital. Most people who engage or desire to engage in business start-up hardly look well or think deep or carry out sound feasibility studies.  There are several approaches that can be tapped in financing start-up or existing one’s without overburdening the business.  Sources to start-up or expanding existing one’s may vary in some instances.


In recent yeas, there has been growing awareness of the importance of new business start up for long-term economic growth and employment creation.  This is reflected in the active role individuals, organisations and even some governments play in promoting small business start-ups.



It is widely recognised that a key element of successful start-ups is adequate financing (Bates, 1997].  However, success in business is a function of many factors.  Finance happens to be one of such factors.  Availability of finance does not guarantee success in a business start-up or even expansion.  Lack of finance is bad but excess of finance is even worse.  Without any argument, finance is a strong requirement for a successful business start-up and even for any contemplated expansion or running of an existing business outfit.  In most developed countries, new business finance takes the form of bank loans while the next largest source of fund is family members.  The picture is slightly different in developing countries.  It is heart running today that many people especially young men and women now dream of starting and managing their own business.


Some, actually do start a business and achieve their dream, while other keep on dreaming.  What separates the successful entrepreneur from the unsuccessful? In many case, the general excuse seems to be centred on the ability of the prospective business owner to access sufficient funds to turn the dream into reality.  Some times, business failure can be traced to either lack of finance or even excess of it.  Too man people hardly know the various sources of financing and their equipments.


Only few meet the requirements.  Obtaining the funds to stat or expand a business can be confusing, frustrating and time consuming.  Whether a business is starting or expanding, sufficient capital or working capital is essential.  It is not enough to simply have sufficient finances but sound financial intelligence and effective planning are required to manage it well (Jones, Mc Evoy and Barrett, 1994). It is advisable that entrepreneurs should avoid common mistakes like:

a.           Securing the wrong type of financing

b.           Miscalculating the amount required.

c.            Underestimating the cost of borrowing money.



There is no internationally accepted definition of small business or small-scale industries because the term “small” is a relative concept.  What is considered small in one community may in fact be a large one in another country.


Indeed, a common definition is impracticable because of the use of different variables describing the small business in different countries.


However, some common variables used by researchers and writers or authors include:

a.           The number of employees.

b.           Sales turnover.

c.            Quantum of assets

d.           Investment

e.            A combination of some or all of these.


In United States, the size of a business is measured using several criteria including the number of employees, total sales volume and total assets.  Any business that employs less than one hundred people or grosses less than one million dollar is considered small in United States.  Whereas  in Nigeria, this could perfectly fit into medium scale business.



The following problems will be analysed during the course of the research work.

a.           The lack of funding of small business of banks and financial institutions.

b.           The lack of funding of small business by the government.

c.            Lack of technical and expert skill in running small and medium business.

d.           Lack of venture capital program to assist in funding small business.

e.            Lack of basic infrastructure and collateral.



a.           To highlight the various sources of funds to small and medium scale business.

b.           To proffer solution to the difficulties experienced in the process of raising capital.

c.            To evaluate managerial effectiveness in the use of capital raised to meet objectives.

d.           To analysis and give suggestions to the right source to raise capital under given situation in the business.

e.            To make necessary recommendation.



a.           Managers or owners of small and medium businesses should be able to know the right source to raise capital under different circumstances.

b.           The study will make the owners to be more prudent in utilising capital raised.

c.            It will serve as a guide to owners on how to plan the repayment of the principal sum raised including the interest.

d.           It will serve as a reference to students and in the business environment in planning small business financing.

e.            It will serve as a framework for further research work to be carried out.



This research will focus on small and medium businesses (a typical supermarket at Yaba Market) the methods of financing and challenges faced by owners in the process of raising capital.



The following factors are perceived to be capable of affecting the quality of work to be carried out on the project

a.           Time limitation

b.           Insufficient capital to meet all clerical duties.

c.            Insufficient information for the whole write-up



In the course of this study, questionnaires, literature review, personal interview and visitation will be adopted to conduct the research work.



The Ho and HI hypothesis approach will be adopted.

Ho:  Finding of small and medium businesses in Nigeria is not possible taking the Nigerian business environment into consideration.


HI:  Finding of small and medium businesses in Nigeria is possible taking the Nigerian business environment into consideration.



Someone who takes initiative, organises some social and economic mechanisms and accepts the risks of failure.  Someone who has taken the challenges to create new exchange of goods services, factors of production, technological capital ideas.


SOURCES OF FINANCE:  These are various means through which the small and medium scale businesses can get their funds.


PERSONAL SAVINGS:  Money kept aside for business purpose by the entrepreneur.


BORROWING OF LOAN FROM COMMERCIAL BANK:  Commercial banks do provide loans to begin and run businesses on presentation of realistic and acceptable business plan.



NEXIM was established in 1991 to provide export financing and export related services such as rediscounting and refinancing facilities and stocking facilities to export firms.


SMIESIS:  Small and Medium Industries Equity Investment Scheme (SMIESIS).  It was established by the Bankers committee in 2000 and it requires each Bank to set aside 15% of its annual pre-tax, profit for equity investment in small and medium scale enterprises.


MICRO FINANCING:  Assistance rendered by the community banks and other banks through giving of loans to small scale and medium enterprises.


VENTURE CAPITAL:  Joint venture form of business between the Banks and small and medium business so as to aid in financing, managing and controlling the business.

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