Access to Finance and Entrepreneurial Performance: An Economic Perspective

Finance is a key factor of performance of an entrepreneur, especially in small and medium-sized business (SME) in the developing economies. This paper explores the connection between financial access and SME performance in Ilorin Metropolis, Nigeria, where formal and informal finance sources are taken into consideration and also financial constraints are taken into consideration in the form of collateral and interest rates. In theory, increased access to finances promotes investment, innovation, and business expansion, whereas access to a limited amount of finances suppresses entrepreneurial development. The quantitative cross-sectional design was used and 200 SMEs were surveyed, 188 complete responses were obtained (94% response rate). Data on access to finance, sources of finance, financial constraints and performance indicators, such as profitability, sales growth, employment growth and sustainability were collected using structured questionnaires. The OLS multiple regression, panel regression, and logistic regression models were used to test hypotheses. The results show that the ability to access finance has a positive influence on the performance of SMEs, and formal finance has the most significant effect. Limited finances are a source of poor performance, and better access to finance will lead to inclusive growth, particularly of women owned SMEs. All the null hypotheses were dismissed which proved the importance of financial resources in the development of SMEs. In a bid to enhance the competitiveness of the SMEs and to spur the local economic growth, the study proposes strategic financial interventions, which include customized credit products, alternative funding sources, financial literacy initiatives, and inclusive policies.