Examination of factors influencing lending decision to SMEs : a case of finance providers in Tanzania

Partial fulfillment for award of Master of CommerceThis study examines the factors that finance providers in the mainland of Tanzania consider important in SMEs lending decisions. Data were collected from the headquarters of finance providers in Dar-es salaam. A sample of 32 out of 46 finance providers was studied. Data was collected through questionnaires. The statistical analyses included descriptive statistics (mode and mean ranks), and Pearson chi-square. The findings show that the most critical criteria that are used by the finance providers to accept or reject the SME loan proposal were collateral, bank policy, risk of the default, size of the loan, credit history, net profit to sales, existing profitability, repayment of the previous loan, trading experience, repayment schedule, type of business, purpose of the loan, business ability and honesty, projected income, gearing, liquidity ratio, equity stake, management skills, and maturity. Using Pearson chi-square (x²) the association between factors was examined whereby the empirical results indicate that there is an association between having audited financial statements and access to credit. There is also an association between collateral and access to credit. When financial information were unavailable or unreliable, finance providers ranked very high the use of industry sector information, ownership type information, age of the firm information, work experience information, location of the firm information, firm size information, and education background information. The research concludes that lack of financial information and inability to present appropriate collateral are the reasons why finances are not available from the finance providers.This study examines the factors that finance providers in the mainland of Tanzania consider important in SMEs lending decisions. Data were collected from the headquarters of finance providers in Dar-es salaam. A sample of 32 out of 46 finance providers was studied. Data was collected through questionnaires. The statistical analyses included descriptive statistics (mode and mean ranks), and Pearson chi-square. The findings show that the most critical criteria that are used by the finance providers to accept or reject the SME loan proposal were collateral, bank policy, risk of the default, size of the loan, credit history, net profit to sales, existing profitability, repayment of the previous loan, trading experience, repayment schedule, type of business, purpose of the loan, business ability and honesty, projected income, gearing, liquidity ratio, equity stake, management skills, and maturity. Using Pearson chi-square (x²) the association between factors was examined whereby the empirical results indicate that there is an association between having audited financial statements and access to credit. There is also an association between collateral and access to credit. When financial information were unavailable or unreliable, finance providers ranked very high the use of industry sector information, ownership type information, age of the firm information, work experience information, location of the firm information, firm size information, and education background information. The research concludes that lack of financial information and inability to present appropriate collateral are the reasons why finances are not available from the finance providers