High Interest Rates and Collateral Requirements as Constraints to Formal Financing Access Among Small-Scale Businesses in Akure, Ondo State, Nigeria

Small-scale businesses in Nigeria face persistent financing constraints despite the existence of formal financing channels. While previous studies have examined SME financing broadly, they have not sufficiently examined whether high interest rates and collateral requirements significantly constrain access to formal financing in Akure, Ondo State. The study adopted a quantitative cross-sectional survey design. The study selected a sample of 280 registered small-scale business owners in Akure metropolis using stratified random sampling. Data were collected through a structured questionnaire and analyzed using descriptive statistics, independent-samples t-test, and binary logistic regression. The hypothesis tested was: High interest rates and collateral requirements do not significantly constrain access to formal financing for small-scale businesses in Akure. The independent-samples t-test showed that non-users of formal financing perceived high interest rates (t = -2.04, p = .042) and collateral requirements (t = -2.51, p = .013) as significantly greater constraints than users did. Binary logistic regression confirmed that high interest rates (B = -0.612, p = .008) and collateral requirements (B = -0.734, p = .003) significantly reduced the likelihood of accessing formal financing. The null hypothesis was rejected. The findings confirm that high interest rates and stringent collateral requirements constitute statistically significant barriers to formal financing access among small-scale businesses in Akure. This aligns with the broader literature on SME financing constraints in Nigeria and underscores the need for policy interventions to reduce borrowing costs and relax collateral requirements. The study recommends that the Ondo State Government, financial institutions, and policymakers should establish targeted financing schemes with concessional interest rates and alternative collateral arrangements to enhance formal credit access for small-scale businesses.