Small and medium size enterprises' access to external finance in Lesotho
Mokoatleng, Mpho Armistice
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The objective of this study is to identify the main obstacles to SMEs’ access to external finance in Lesotho. The research is conducted against a backdrop of access to external finance continuing to be a significant challenge for SMEs, resulting in their failure to continue operations, grow or maintain competitiveness. The lack of access to finance by SMEs is highly pertinent – especially for a least-developed country like Lesotho – as it not only constrains SMEs growth and success, but also hampers the economic growth and development of countries. An empirical research was conducted using a quantitative approach and nonprobability, convenience sampling technique. The sample size of 82 was drawn from a population of SME owners and managers in Lesotho and the research instrument used was a self-administered questionnaire. The study found that only 50% of the SMEs surveyed have tried to access credit, and personal savings of owners was the leading source of start-up capital. Working capital was the leading reason SMEs needed external finance. Retained earnings remain the leading source of current funding, followed by up to 63.4% of SMEs that still used personal savings of owners as source of current funding. Meanwhile, a majority of SMEs preferred banks as their main source of future funding over other sources. The main demand-side obstacles to access to external finance for SMEs in Lesotho, identified by this research and in order of significance, are; 1) SME owners/managers believe they do not need credit, 2) inadequate cash flow to cover monthly loan repayments, 3) high interest rates and other costs of getting a loan, 4) lack of collateral, 5) equity base that is too small, 6) not wanting to be told how to run their businesses by financiers, 7) lack of the required business plan, 8) lack of information required by financiers, 9) financing is not available at all and, 10) lack of time to understand and complete loan applications.