5.5 P RESENTATION AND ANALYSIS OF RESULTS ACCORDING TO THE O BJECTIVES OF THIS STUDY
5.5.2 Objective 1: To examine the challenges faced by SMEs in Zimbabwe
5.5.2.4 Bank Loan application
Having established that most of the SMEs have a limited access to finance and that the cost of finance is high it became important to determine the percentage of SMEs which had applied for a bank loan. This was important because it would enable SMEs to explain reasons either for their
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failure or ability to apply for a bank loan especially considering that most of them had limited access to finance. This explanation will serve as a recommendation as well as better determine if the objectives of the policy have been achieved. Figure 5.7 shows a pie chart of the different percentage of bank loan applicants and those that are yet to apply for bank loans.
Figure 5. 7 Percentage of bank loan application
Figure 5.7 shows that 55.05 percent (n = 60) of the respondents in this study were yet to apply for a bank loan and the remaining 44.95 percent (n = 49) have applied for bank loans. Open ended questions were put in place to allow respondents to express themselves with regards to bank loan application. The following are qualitative insights some of the participants gave explaining their failure to apply for a bank loan:
“I had no collateral and therefore was aware that I will not get the loan.”
“It’s difficult getting loans especially if one has no collateral.”
“The Bank wanted collateral security and I had none.”
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The above responses show that the main deterrence to applying for a bank loan among SMEs are collateral requirements. Most of the respondents showed a willingness to apply for bank loans however they were discouraged by the collateral requirements. Therefore, most of the small businesses have limited access to finance even though there are banks to lend them money mainly because of collateral requirements. To better appreciate the challenge presented by collateral requirements in bank loan application participants were asked to rate the difficulties presented by collateral requirements from extremely negative, which is highly undesirable, to extremely positive which shows that it presents no challenge. Figure 5.8 is an illustration of the responses.
Figure 5. 8 Collateral requirements as challenges to bank loan application
Figure 5.8 shows that most of the respondents are of the view that collateral requirements present a huge challenge and negatively affect their desire to apply for bank loan, as shown by the fact
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that 38.53 percent of the respondents ranked it as extremely negative. About 26.61 percent of the respondent agree that collateral requirements are a challenge in their desire to apply for bank loans. This shows that 65.14 percent of the respondents’ view collateral requirements as a deterrent to applying for a bank loan. In this regard, finding an alternative to collateral requirements is important to encourage small businesses to apply for bank loans in order to rid themselves of the problems associated with the limited access to finance. 10.09 percent of the respondents were neutral about the challenge presented by collateral requirements, while to 24.77 percent of the respondents in this study collateral requirements presented the least challenge.
However, the following argument by experts relays a different perspective into bank loan application:
” Most of the small businesses can’t apply for loans from banks because they don’t have permanent premises. They don’t have formalised cash flow statements and can’t prove their ability to repay the loan. Yes, collateral is a problem but there are some other documents that they can produce to prove their ability to repay the loans…SMEs are reluctant to register yet with registration they will be in a better place to get loans from banks…”
Even though collateral requirements can be viewed as challenges to bank loan application, expert opinion shows that the unwillingness to formalise businesses is a challenge for SMEs. In this light therefore, business registration would be a necessary step to lessen the challenges that are associated with accessing bank loans.
Section 5.5.2.1 showed that most of the respondents identified the limited access to finance as a huge challenge and this can be explained by the results to question C5, which was an enquiry into whether or not the respondents have applied for a bank loan. The findings showed that 55.05 percent of the respondents have never applied for bank loans whilst 44.95 percent have applied.
Most respondents, therefore would find limited access to finance as a challenge as few SMEs are applying for bank loans.
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Furthermore, the respondents were given an option to explain their answers to question C5 in order to understand their reasons for either applying or failure to apply. Most of the cited challenges by those who applied for bank loans are collateral requirements, high costs and bureaucracy, that is, the fact that the application process is lengthy and has too many requirements. The following are some of the qualitative insights given by SMEs on open ended questions:
“Bank loans are too expensive to the extent that they can leave me in serious debt.”
“I’m an individual who relies on the informal sector therefore it was hard to apply and a get a loan without the necessary requirements like payslips and others. And also due to the economic meltdown in my country it was difficult as there was no cash in the banks.”
“I do not have the assets that can be used as a guarantee (collateral requirements).”
The responses given for the failure to apply for bank loans show that the limited access to finance is as a result of the cost of finance mainly in the form of requirements. Most of the businesses which have never applied for a bank loans cited collateral requirements as the major reason for their failure to apply for bank loans. Both registered and unregistered businesses have applied for bank loans and for the unregistered businesses the only challenge mentioned is the lack of collateral. In this light, therefore one can hypothesise that the cost of finance influences the access to finance.