ASSESSMENT OF FINANCING STRATEGIES FOR SMALL AND MEDIUM SIZE CONSTRUCTION FIRMS IN ABUJA

ABSTRACT

Deciding on financing strategies to support small and medium size construction firms (SMCFs) is not always easy. The aim of the study is to assessed the financing strategies employed by small and medium size construction firms in Abuja with a view to develop additional strategies for effective financing of the firms. Mixed method research methodology was adopted involving the administration of 85 structured questionnaires and semi-structured interviews with 10 selected managers of concerned organizations both (SMCFs) and development financial institutions (DFI) in Abuja metropolis. The study indicated that the first five main internal sources of finance for SMCFs are; Cash management account, high- yield savings account, specialty savings account, owner capital and money market accounts.with an item mean score of 4.506, 4.212, 3.588, 3.106 and 2.706 respectively.While that the first five main external sources of finance for SMCFs are; competitive funding grant, development bank of Nigeria. (DFI), bill payable trade credit, 14 days treasury bills and the family angel investor, with an item mean score of 4.435, 4.329, 4.329, 4.176 and 3.882.The   the first five main drivers of sources of finance for SMCFs are; quaternary sector of the economy (Information Services), operational (feasibility and viability report), corporation, limited liability company (LLC) and people with an item mean score of 4.553, 4.259, 4.235, 4.141 and 4.012.And the first five main barriers of  sources of finance for SMCFs are;untimely sanctioning of loan, unavailability of intellectual property, insurance policy, changes in management systems and inadequate business  information,  with  an  item  mean  score  of    4.388,  4.376,  4.365,  4.353  and 4.341.The key factors considered in developing strategies for enhancing sources of financing for (SMCFs) are in different categories. Based on period category are short term period is 1-12 months, medium term period is 2-5 years and long-term period is 3-30 years. On the bases of ownership; owner‟s funds are internal sources while borrowed funds are external sources. On the bases of generation Internal Sources are funds generated from within the business while external Sources are the funds generated outside the business. The drivers for the 10 selected managers of the organisations varies base on the policy direction, leadership style and the mandate that set them up, while the barriers are similar as lack of information, communication as well as failure to meet up with criteria requirement. Hence Small and medium businesses are so important in the Nigerian economy, local, state, and federal governments have recognized the need to support them in order to create jobs, decrease poverty, boost economic growth by contributing to the national gross domestic product (GDP) of the Country. It is recommended that the concerned stalk holders i.e. policy makers, decision makers, planning officers and entrepreneurs should be open minded and truthful to themselves with the decision taken in respect to sources of financing options in support of SMSCFs, it should be such that is efficient and ethical with an effective repayment plan for it sustainability and not to be based on theory only but also in practice. The result of the study can be applied to provides significant  understanding that  can  support  decision  making on  the various  sources  of finance to improve access to financing options and finding innovative solutions to unlock sources of capital for (SMCFs) that have little or no knowledge of the existing financial inclusion opportunities available.

CHAPTER ONE

1.0       INTRODUCTION

1.1       Background of the Study

In general, the construction sector, which includes micro, small, and medium-sized businesses, is one of the most important industries in any country’s economy (Babalola et al., 2015). According to Du Plessis (2001), the construction industry accounts for up to 10% of GDP, more than half of domestic fixed capital formation, and is one of the largest employers in the country. Construction lays the foundation for economic growth by providing crucial infrastructure investment for fixed capital required for the growth and development   of   many   economic   sectors   (Giang   and   Pheng,   2011).   Construction investments might be postponed, and the perceived necessity is closely related to the status of the economy as well as government fiscal and monetary policy. Consumer demand for products and services tends to rise during periods of real GDP expansion, which in turn drives demand for construction investment (Tse and Ganesan, 1997).

The construction  industry is  frequently viewed  as  a key engine of  economic growth, particularly in emerging countries. As a result, policymakers have made great use of the sector as a vehicle for economic development. Many countries, for example, utilize public building spending as a budgetary yardstick. The high construction sector output to GDP ratio, especially in developing economies, demonstrates the importance of the building sector to economic growth (Ruddock and Lopes, 2006).

Employment generation has been one of the important objectives of development planning in Nigeria. However, the issues of employment generation by both the Federal and State

governments have become more of propaganda. This can be proven by the increase in societal ills as poverty, crimes, conflicts, Niger Delta militants, Kidnappers, tribal conflicts, and Boko Haram, are just a tip of the iceberg of the dangers posed by rising unemployment (Mustapha  and  Ekpnuobi,  2012).  Small  and  Medium  Sized  Enterprises  (SMEs),  an indicator of economic development, underpin growth through creating jobs and improving living standards. In most countries, the definition of SMEs includes cluster of Small and Medium sized Enterprise based on the number of employees.

SMSCFs are construction project managers who own and operate their own companies (Inuwa et al.,2013; Harris and Mc Caffer, 2005). In exchange for financial compensation, they contribute their skills, services, and take on the challenges of completing the assignment (Ugochukwu and Onyekwena, 2014). Furthermore, construction organizations are classified according to their scope of activity (local, regional, national, and international), field of specialization (building and engineering), size and category of contractor (small, medium, and big), and ownership (national, foreign, and indigenous) (Idoro and Akande 2008; Muazu and Bustani, 2004).

SMEs financing are the primary source of funding for SMEs. The majority of commercial bank  loans  to  SMEs  have terms  that  are simply too  short  to  pay off  any significant investment (Abereijo and Fayomi, 2005). Moreover, the Nigerian financial crisis demonstrated that bank financing is not a stable source of funding, particularly during times of systemic stress. Regulations enacted in the aftermath of the crisis, such as stricter capital requirements, have added to the difficulty of obtaining bank loans for SMEs. As a result, the necessity for a variety of finance sources for SMEs is now more important than ever (Emefiele, 2014).

Small  enterprises  employed  80%  of  the  Nigerian  workforce,  according  to  SMEDAN (2013). According to Shehu et al. (2013), small enterprises account for 97 percent of the Nigerian economy and provide 70 percent of the country’s job prospects. Because small businesses are so important in the Nigerian economy, local, state, and federal governments have recognized the need to support them in order to create jobs, decrease poverty, and boost economic growth. Various agencies, such as the Small and Medium Enterprises Development Agency (SMEDAN), were established to  aid in the development of the Nigerian economy’s small company sector (Kayode and Ilesanmi, 2014). Other entities with the mandate to build the SMEs and SMSCFs inclusive sector include the National Directorate of Employment (NDE), Peoples Bank of Nigeria (PBN), Microfinance Banks, National Economic Reconstruction Fund (NERFUND), and National Bank of Commerce and Industry (Kayode and Ilesanmi, 2014). Despite efforts to establish small company development agencies in Nigeria, according to Kayode and Ilesanmi (2014), small firms in Nigeria continue to encounter obstacles that endanger their survival. The Agency is the country’s top coordinating and  regulatory body for all aspects  connected to founding, reviving, and growing MSMEs (Asafe et al.,2015). Furthermore, the agency

1.2       Statement of the Research Problem

SMSCFs are generally hampered by challenges such as a lack of convincing feasibility studies, poor administrative and managerial skills, poor ownership structure, lack of effective policies or framework, low documentation of policies, little or no training for staff  development,  financial  constraints,  and  poor  infrastructure,  according  to  Onugu (2005) and Solomon (2010). Poor finance, insufficient social infrastructures, a lack of managerial skills, and numerous taxations are all important obstacles that SMEs face, according to Agwu and Emeti (2014).

According to Adebisi and Gbegi (2013), some SMSCF owners do not have the necessary technical or managerial abilities to run their businesses. Lack of technical expertise frequently leads to a lack of long-term interest in investing. Construction companies are more likely to be disappointed than other types of businesses. According to in Nigeria, 80 percent of small businesses fail during the first five years of their establishment, and the financial loss is intolerable, resulting in negative consequences. Small business success entails operating a business for more than five years and reaping the benefits. SMEDAN (2013).

Many small company surveys have identified financing as one of the most critical determinants  of  SMSCF  survival  and  growth.  As  a  result,  an  investigation  into  the concerns, challenges, and opportunities of SMSCFs becomes important. Various funding programs have previously been implemented to boost MSMEs’ access to long-term funds in order to improve their performance and economic output. Finance and working capital, according to Harris and McCaffer (2005), are a primary resource requirement for SMSCFs to allow the smooth execution of construction projects, which include cash on hand, bank loans, overdrafts, and credit.

The financial resources required to turn an entrepreneur’s ideas into a viable project are referred to as funding. It could be in the form of loans, equity capital, venture capital, working capital, or any other type of financing (Raji et al., 2017). This study, on the other hand, looked at the various sources of financial techniques available to SMSCFs in Abuja, as well as their drivers and hurdles.

In their exploratory study of the critical challenges limiting small business performance in Nigeria,  Ihua  and  Siyanbola  (2012)  discovered  that  five  critical  issues  impede  the operations of small building contractors in Nigeria, namely: limited access to credit, high cost of doing business, insufficient infrastructure, and inconsistent economic conditions.

As a result, financial issues faced by small and medium construction enterprises are a significant issue that this study aims to address.

This research aims to address the following questions based on these explanations:

1.         What are the sources of finance for SMSCFs in Abuja?

2.         What are the drivers for various sources of finance for SMSCFs in Abuja?

3.         What are the barriers faced by SMSCFs in sourcing for finance in Abuja?

4.         What strategies will enhance financing of SMSCFs in Abuja?

1.3       Aim and Objectives

The aim of the study is to investigate the financing strategies employed by small and medium size construction firms in Abuja with a view to develop strategies for effective financing of the firms. The objectives are:

1          To identify the sources of finance to SMSCFs in Abuja

2          To identify the drivers for the various sources of finance to SMSCFs in Abuja

3          To determine the barriers to sourcing for finance by SMSCFs in Abuja

4          To evaluate the financing strategies adopted by small and medium size construction firms.

5          To develop strategies for enhancing financing for SMSCFs in Abuja

1.4       Justification for the Study

Access to finance has become an essential focus in small company study as a result of the necessity of a financing strategy for the start-up, growth, innovation, and survival of any firm (Bernard, 2016). Despite the abundance of research findings on access to finance, there are still research gaps in the knowledge base of various types of access to credit, particularly for construction enterprises.

Several studies on SMEs and the function of microfinance have been undertaken; for example, Ojo (2009) looked at the influence of microfinance on entrepreneurial development in Nigeria and concluded that funding is a big barrier in terms of growth. In a related development, Otero and Rhyne (1994) defined microfinance as “a revolution involving the large-scale supply of small loans and deposit services to low-income people by secure, conveniently situated financial institutions.” It encompasses a broader range of services, namely credit, savings opportunities, insurance, money transfers, and other financial goods aimed at the poor and small business owners. (2009). According to Oni et al. (2017), the contribution of micro finance institutions (MFIs) is critical to the long-term growth of small and medium-sized firms (SMEs) in Nigeria. Gambo et al. (2017) analyzed the cost factor’s effect on SMSCF performance, and the study recommended that clients provide  financial  support  to  increase  SMSCF  performance.  Previous  research  by Abubakar, (2004), Aminu-Kano, (2004), Ndah, (2004), and Adams, (1997) concluded that small and medium-sized firms require short-term loans or advances to jump-start initiatives in order to improve their performance. Nwaogu et al. (2016) investigated the financial performance of Abuja-based Small and Medium Construction Firms (SMSCFs). Their investigation was restricted to SMSCF financial statements and performance.

1.5       Scope and Limitation The goal of this study was to evaluate the financial methods used by small and medium- sized construction enterprises in Abuja. The research was restricted to SMSCFs in Abuja, the Federal Capital Territory (FCT). The area is chosen because it contains the most real estate developers and professionals in the built environment, as well as numerous ongoing building projects

₦8,000.00 – DOWNLOAD FULL PROJECT DOWNLOAD FULL PROJECT Added to cart

---

---

---

---

Related Project Topics :