CHALLENGES SMES FACE IN ACQUIRING LOANS FROM BANKS : A Comparative Study between Finland and Ghana

Abstract

Small and Medium-sized Enterprises make significant contribution to the socio-economic and political infrastructure of developed and developing countries. The ability of SMEs to develop, grow, sustain and strengthen themselves is heavily dependent on their capacity to access and manage finance. The ability to access finance is a major factor affecting the growth and success of SMEs. Many businesses face a lot of challenges acquiring loans from banks and SMEs are the most affected. This thesis reviews the debt options available to SMEs, the determining factors banks consider before granting loans to SMEs and make comparative analysis of the challenges SMEs face in accessing bank loans between Finland and Ghana, and recommend solutions in averting the challenges.

The findings of the thesis shows that banks in general perceive SMEs to have high credit risk as compared to big corporations. Banks consider managerial character, capacity, environmental condition and collateral guarantee before making loan decisions. Banks in Ghana are strict on the collateral guarantee due to the high risk of loan default by their SME customers. Poor business proposal/plan, unprofitable investment decisions, unfavorable governmental economic policies and insufficient collateral are some of the challenges SMEs face in accessing bank loans. Information asymmetry and high interest rate are unique loan challenges for SMEs accessing loans from Ghana. Low interest which makes loans unprofitable to banks in Euro Area is also specific challenge to Finnish SMEs.

Recommendations such as managerial skills workshops for SMEs, favorable economic and monetary policies and governmental support are suggested to avert some of the challenges the SMEs face in accessing loans.