Faulty Business Plans, Poor Financial Records Limit MSMEs’ Access To Credit

Industry stakeholders and ecosystem players have identified weak business planning, poor accounting practices, inadequate cash flow documentation, vague market analysis, lack of market viability assessments, and insufficient insurance coverage as major factors limiting Micro, Small and Medium Enterprises (MSMEs) from accessing credit from traditional financial institutions.

According to the stakeholders, poor business planning, weak financial record-keeping, and the high level of informality among Nigerian MSMEs continue to undermine their ability to secure loans and other forms of financing.

They noted that these deficiencies make it difficult for businesses to demonstrate creditworthiness and develop the growth strategies required to attract funding.

As a result, many MSMEs face significant structural barriers in the credit market, where lenders often demand collateral, verifiable financial records and a clean credit history before extending loans.

The “Association of Small Business Owners of Nigeria (ASBON)” attributed many of these challenges to the absence of proper business planning among entrepreneurs.

The association warned that many SMEs operate with a “survival-only” mindset, lacking formal business plans, realistic cash flow projections, and the flexibility to adapt to changing market conditions.

ASBON has consistently encouraged entrepreneurs to adopt structured business strategies as part of efforts to address the recurring causes of SME failure and improve their chances of accessing finance.

Speaking in a telephone interview with LEADERSHIP, ASBON National President, Dr. Femi Egbesola, urged entrepreneurs to formalise their business structures, maintain proper financial records, and explore alternative funding sources.

He warned that MSMEs risk high mortality rates if they continue to operate without formal structures, citing faulty business plans, lack of business registration, weak accounting practices, and inadequate financial management skills as key concerns.

According to him, many SMEs fail not because of a lack of effort, but due to poor planning and unsustainable business practices.

Egbesola noted that unbanked operators and nano-enterprises often struggle to access credit because they lack structured business management systems.

Among the major shortcomings affecting SMEs, he identified the failure to separate personal and business finances, a practice that often depletes working capital.

“A major challenge is that many operators find it difficult to separate personal funds from business capital. Treating business cash as personal income quickly erodes working capital,” he said.

He also pointed to what he described as a “survival-only mindset,” where entrepreneurs focus primarily on meeting immediate needs rather than building sustainable businesses with long-term goals and strong brand identities.

In addition, Egbesola highlighted poor financial record-keeping as a major obstacle, noting that businesses that operate without proper records or digital banking systems are often excluded from intervention funds and formal credit opportunities.

While acknowledging the critical role of SMEs in national development, he stressed that access to funding remains one of the sector’s greatest challenges.

Echoing similar concerns, Managing Director of the Bank of Industry (BOI), Rasheed Olaoluwa, said the absence of bankable business plans and clearly defined business models continues to hinder access to credit for many SMEs.

According to him, weak business plans have made banks increasingly reluctant to extend credit to small businesses.

Olaoluwa explained that information asymmetry arising from inadequate accounting records often makes it difficult for creditors and investors to assess the creditworthiness of SME loan applications.

He noted that access to finance has consistently been identified in business surveys as a critical factor for the survival and growth of SMEs in both developing and developed economies.

“Access to finance allows SMEs to undertake productive investments, expand their businesses, and acquire modern technologies, thereby enhancing their competitiveness and contributing to national economic growth,” he said.

“Poorly functioning financial systems can seriously undermine a country’s macroeconomic fundamentals, resulting in lower income growth and reduced employment opportunities.”

The BOI chief further observed that despite their significant contribution to job creation and economic activity, SMEs have traditionally faced challenges in obtaining formal credit and equity financing.

He explained that commercial bank loans available to SMEs are often short-term and insufficient to support major investments.

“For example, the maturity periods of commercial bank loans extended to SMEs are often too short to finance sizeable investments. This is largely due to the short-term nature of banks’ funding sources, which creates a mismatch when such funds are deployed as long-term facilities,” he said.

Olaoluwa added that access to competitive lending rates is typically reserved for prime customers, while SMEs are often subjected to higher borrowing costs, further limiting their ability to grow and compete effectively.

He stressed that addressing these challenges would require stronger financial management practices among SMEs, improved business planning, and a more supportive lending environment that can meet the financing needs of small businesses.

In the same vein, Founder and CEO of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said weak financial records and poor accounting structures among small businesses continue to discourage banks from lending to the sector.

According to him, most SMEs lack proper bookkeeping systems, audited accounts, and credible financial statements that would enable banks to assess their repayment capacity.

“Many commercial banks don’t even want to deal with them because they say they are risky,” Yusuf said.

He explained that the absence of reliable financial records often makes it difficult for lenders to determine business performance, cash flow stability, and creditworthiness.

“Small businesses need proper accounting systems because banks want to see evidence of turnover, profitability, and repayment ability before they can approve loans,” Muda Yusuf said.