Equipment Leasing as a Source of Finance For Small and Medium Scale Entrepreneurs In Nigeria

Abstract

The paper is looking into fund raising through leasing of equipments and machineries rather than purchasing them on cash and carry basis as such having much impact and impart on the working capital of the small and medium scale enterprises. The paper looked into relevant and related studies and came up with the ideas like concept of leasing, types of lease arrangement and Central Bank of Nigeria regulations as to lease for small and medium scale enterprises. The study made use of a self designed questionnaire called ELESOF to get information from respondents and came up with certain conclusions that equipment leasing is very paramount to the survival of organisations and that though the CBN gave the rules to encourage of small and medium scale enterprises through equipment leasing via the commercial banks but this is just an illusion as far as the instruction by CBN to commercial banks.

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International Journal of Management Excellence
Volume 2 No. 3 February 2014
©TechMind Research, Canada 247 | P a g e
Equipment Leasing as a Source of Finance For Small and
Medium Scale Entrepreneurs In Nigeria
Olatunji Eniola Sule (MNIM)1, Sarat Iyabo Amuni (MRS)2
1 Business and Finance Department, Crescent university, Abeokuta, Nigeria, olasem2005@yahoo.com
2Tai Solarin University of Education, Library and Information Management Department
Ijebu-ode, Ogun state, Nigeria, saraamuni2012@gmail.com
Abstract- The paper is looking into fund raising through leasing of equipments and machineries rather than purchasing
them on cash and carry basis as such having much impact and impart on the working capital of the small and medium scale
enterprises. The paper looked into relevant and related studies and came up with the ideas like concept of leasing, types of
lease arrangement and Central Bank of Nigeria regulations as to lease for small and medium scale enterprises. The study
made use of a self designed questionnaire called ELESOF to get information from respondents and came up with certain
conclusions that equipment leasing is very paramount to the survival of organisations and that though the CBN gave the
rules to encourage of small and medium scale enterprises through equipment leasing via the commercial banks but this is
just an illusion as far as the instruction by CBN to commercial banks.
Keywords- Lease; Enterprise; Central Bank of Nigeria
1. INTRODUCTION
It is unquestionably true that the development of a nations‟
industrial sector hinder greatly on the development of
small and medium-scale enterprises operating in that
economy. This is because small and medium-scale
enterprises are significantly yielding the fruits of
developing particularly employment, indigenous
technological development, utilization of local resources
and lower cost provision of inputs and services for large
enterprises. Small and medium scale industries are
important not only because they account directly for
significant proportion of investment, output and
employment in a nation but also even more significantly
because they provide vital links in the chain of the
economy as a whole, motivating, energizing, and
connecting various sectors and sub-sectors for greater
overall output of employment and productivity.As
proffered in Sule (2013), Small and medium-scale
industries had greater potential for stimulating and
sustaining technological progress and self reliance through
production based adaptation innovation and through
programmed link ages with the advance industrial and
market sectors. Thus, the indispensability of small and
medium-scale enterprises in a country‟s industrial
growth.Plan is a theme that runs through most writings and
discussions on small and medium-scale enterprises. Yet,
in Nigeria, small and medium-scale enterprises suffer from
large constraints. These constraints include inadequate
finance, shortage of raw materials, marketing problems,
inadequate infrastructural facilities, inappropriate
technology and production, labour and inadequate
management experiences etc. This researcher, however,
believe that their greater problem is inadequate capital to
establish on a proper basis and modernize or maintain their
enterprises through periods of temporary adversity.
Virtually, all the other problems emanate from inadequate
finance. Almost 8 out of 10 energetic small and medium
businesses are believed to have shortage of capital as their
major problems.With the introduction of the structural
adjustment programme in 1986, the problems of
inadequate capital were escalated such that small and
medium scale enterprises could hardly finance their fixed
capital needs like plants and machineries which are mostly
imported. This was because of the fluctuating exchange
rate system under SAP, which devalued Naira by more
than 60% later in 1987, a market determined interest rate
structure was introduced and this raised the cost of credit.
Besides, banks consider small and medium scale
enterprises as highly risky and hence shy away from
providing their financing needs, in spite of the Central
Banks required annual credit minimum that must be
allocated to them. Other financing avenues such as
owners‟ capital retained earnings and direct government
assistance are virtually ineffective. In the light of the above
circumstances the question that naturally comes up is:
How can small and medium scale enterprises adequately
finance their fixed capital needs under the structural
adjustment programme? Leasing appears to be a viable
financing alternative. Thus, this study will attempt to
provide the rationale for leasing as a major financing
device for small and medium-scale enterprise.
2. LITERATURE REVIEW
2.1 DEFINITION OF SMALL SCALE ENTERPRISE
The definition of small scale industry varies with the
culture and peculiar circumstances of the person
attempting the definition. Studies on small scale
enterprises identify more than fifty different definitions in
seventy-five countries. The small scale business act

International Journal of Management Excellence
Volume 2 No. 3 February 2014
©TechMind Research, Canada 248 | P a g e
passed by the United States congress in 1953 state act “A
small business is one which is independently owned and
operated and not dominant in it field of operation”
(Amienghomwan, 2004). In Great Britain, the standard
definition of small business is a business with an annual
turnover of two million pounds sterling or less with a less
than two hundred paid employees. “Small scale business
means different thing to different people, and whatever
description giving to small scale business tends to suit it.
This tends to be a problem as to which business is to be
categorized as small scale business and which one is large
scale business. But the two main yardsticks for classifying
a business small scale are size and government policy.
They can again be splinted into the size of the employees,
size of market shares, size of the profit, size of capital
employed and government policy on the number of
employees in the organisation, government policy on the
business market shares, government policy on the profit
margin and government policy on the capital employed”
(Sule, 2013).In Nigeria, the multiplicity of the definition is
quite apparent. The Nigeria Bank for Commerce and
Industry (1990) defines a small-scale enterprise as one
whose capital does not exceed ₦750,000, whereas the
Federal Government in 1973 viewed small scale industries
to include all trading and manufacturing units with a total
capital investment up to ₦60,000 and paid employees up
to fifty persons (Ikharehon, 2000). The industry research
unit of the Obafemi Awolowo University defines small
scale enterprise as one “whose assets in equipment, plant
and working capital are less than ₦250,000 and employing
fewer than fifty full-time workers (Banmbach,
1992).While, the Central Bank of Nigeria (CBN)
operational guidelines in 1988 defined small scale
enterprises with reference to two financial areas: the
merchant banks and commercial banks; it states, “for
lending minimum annual return of ₦500,000”.However,
Osazee and Anao (1981) defined a small scale enterprise
as any business undertaken, owned, managed and
controlled by not more than two entrepreneurs, has no
more than twenty employees, has no definite
organisational structure (i.e. all employees report to the
owners) and has a relatively small shares of its market.In
United States, the size of a business is measured using
several criteria including the number of employees, total
sales in volume and total assets. Any business that
employs more than one hundred people or grosses less
than one million dollars is considered small in United
States. Whereas in Nigeria, this could perfectly fit into
medium scale business. This, therefore, makes it relatively
difficult to attempt to define small scale enterprise
differently from medium scale enterprise. The Nigeria
Minister for Industry noted that “Enterprises employing
fewer than 500 workers are generally regarded world-wide
as Small and Medium Enterprises (SME‟s). Based on the
structure of manufacturing in Nigeria, SME‟s are now
defined on the basis of employment. In micro-cottage
industries, 1-10 workers; small scale industries, 11-100
workers; medium scale industries, 101-300 workers; and
large scale industries with 301 and above” (Jamodu,
2001).In India, a small business involves a capital
investment in plant and machinery not exceeding RS
351Khs. While in Indonesia the central Bureau of
statistics classified a unit employing 5 – 6 workers as a
small scale enterprise. On the other hand, the Bank of
Indonesia defines a small scale enterprise as having net
worth in excess of twenty million rupees (Kesavan, 2002).
Industry Canada defines a small business as one with
fewer than 100 employees (if the business is service
based), and a medium-sized business as one with fewer
than 500 employees.Based on the foregoing, it is clear that
there is no universally accepted definition of what
constitute small and medium scale enterprise. What is
most important, therefore, is the SME‟s annexation of
resources and overall contribution to the economic well
being of developing nations across the globe.
2.2 FINANCIAL ENEMIES OF SMALL AND
MEDIUM SCALE ENTERPRISES
Small scale businesses in Africa takes about 85 percent of
the indigenous businesses and large scale takes the
remaining share (Sule, 2013). But that notwithstanding,
the large scale businesses, mostly multi-nationals, always
overshadow the small scale businesses. But, according to
Jaja, 2000, the small scale businesses have played an
important role in our economy. Talk of employment
generation, increase in production or rather total output of
a nation, economic development via self-sufficiency,
assisting the large scale businesses like in terms of
distribution – linking producer with the final or end user,
innovation of new products, carrying out repairs and other
services.We have also been made to realize that „large
scale businesses are the arms and legs of the economy, but
small scale businesses are the brains (Jaja, 2000). If this is
agreed upon that a modern day computer cannot perform
without the Central Processing Unit; the question comes to
mind why is such neglect and lack of encouragement to the
small scale entrepreneurs from governments, the large
scale businesses and other relevant industries like the
financial/banking houses?This bring us to the issue of
those that are the enemies of the small and medium scale
entrepreneurs that it is the large scale industries on one
part and the financial houses on the other part. It is on this
note, that it is paramount that small and medium scale
entrepreneur should imbibe the leasing attitude since if
they want to raise funds through the banks it will be
difficult like the camel passing through the needle eye,
then the only available option and more lucrative avenue
for them is to lease their equipments and machinery from
the leasing companies and later purchase the equipments
and machinery without much stress and rigor.
2.3 CONCEPT OF LEASING
Gallardo (1857) said “an agreement between two parties
whereby one party allows the other to use his/her property
for a certain period of time in exchange for a periodic fee.
The property covered in a lease is usually real estate or
equipment such as an automobile or machinery. There are

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©TechMind Research, Canada 249 | P a g e
two main kinds of leases. A capital lease is long-term and
ownership of the asset transfers to the lessee at the end of
the lease. An operating lease, on the other hand, is short-
term and the lessor retains all rights of ownership at all
times.An agreement that permits one party (the lessee) to
use property owned by another party (the lessor). The
lease, which may be written either for a short term or for a
long term, often results in tax benefits to both
parties”.Richard and Stephen, (2010) said “a lease is a
legal agreement that provides for the use of something --
typically real estate or equipment -- in exchange for
payment. Once a lease is signed, its terms, such as the
rent, cannot be changed unless both parties agree. A lease
is usually legally binding, which means you are held to its
terms until it expires. If you break a lease, you could be
held liable in court. An oral or written agreement
transferring the right to exclusive use and possession of
property for some period of time. Some important lease
concepts are
• The normal requirement that all contracts having to do
with real estate must be in writing does not apply to
contracts that are capable of performance in one year or
less. In most states, an oral lease for less than one year is
enforceable; an oral lease for a longer period is not.
• A tenant is not relieved of responsibility to pay rent if the
premises are damaged, destroyed, or partially or totally
unusable unless the lease allows it, or unless consumer
protection laws applicable to residential leases allow it.
• If a tenant transfers the entire remaining term of a lease
to someone else, that is an assignment. If a tenant transfers
less than the remaining term, that is a sublease. Either way,
the original tenant is still fully responsible for complying
with all lease terms, even if the new one does not. In most
states, a landlord may require its approval before
assignment or subletting, but may not unreasonably
withhold its approval.
• A tenant's interest under a lease may be insured, in
addition to coverage for the contents. The interest may also
be mortgaged, although that would be extremely unusual
except in the case of valuable improvements built on
leased land under a long-term lease”.
Leasing is anchored on the business philosophy that profits
are earned through the use-rather than the ownership-of
equipment and assets. A basic principle in medium – to
long term lending is that cash generated by the investment
that has been partly financed should be the primary source
of repayment. The collateral that is provided as security
for the loan serves as a secondary source of repayment, in
the event that the borrower is unable to repay the loan from
cash generated by business operations.In contrast, leasing
is more intensely focused on the lessee‟s ability to generate
cash flow from business operations to service lease
payments, because the lessor – financier retains ownership
of the asset during the term of the lease. This would make
leasing well-suited to small and medium scale business
activities which seldom have historical credit information
or formal financial statements. The prime impact of
leasing is to increase a business entity‟s total availability of
capital from an external source, leaving its own sources of
capital available for other productive uses. The additional
revenue generated by the use of the leased asset should be
sufficient to meet the monthly lease rental payments to the
lessor.
Conventional asset-based financing from a bank generally
requires a borrower to provide up to 40% of the cost of the
asset to be acquired, since a loan may cover only 60% of
the asset value. In some cases, the bank providing the loan
may require the borrower to put up as security another
asset in addition to the one being acquired (e.g., real estate
in the urban centre). Or, additional security enhancements
(e.g., assignment of bank deposits, marketable securities,
trade receivables or third-party guarantees) may be
required by the bank providing the loan. The collateral
provided as direct or additional security very frequently
will have a discounted value for loan purposes, in
accordance with prevailing banking regulations. The
required equity components, alternative security and
collateral enhancements increase the effective cost of a
financing package and thereby narrows and restricts access
of borrowers to financing. Moreover, 3-5 year term
financing for equipment acquisition is frequently not
available in developing countries, as conventional bank
loans are usually structured on a well-secured short-term
(i.e., one-year or less) basis.In contrast, a lease
arrangement typically requires the owner/borrower to
provide and found 10% of the asset cost as up-front
security deposit. The asset itself serves as collateral for the
transaction since ownership of the asset is retained by the
lessor during the term of the lease. Thus, leasing involves
simpler and better security arrangements and could
potentially reduce collection problems. Additionally, in
markets where the leasing industry has developed and
specialised in a well-defined range of types of equipment,
a lively market for leased equipment has usually developed
as well. Certainly, this is not always the case, and a lively
market would not be thriving especially if maintenance is
deficient on leased equipment (Bernd and Haye, 1996).
2.4 TYPES OF LEASING ARRANGEMENT
Financial leasing is an alternative to bank loan financing
for equipment purchases. The lessor buys the equipment
chosen by the lessee, who then uses it for a significant
period of its useful life. Financial leases are also called
full-payout leases because payments during the lease term
amortize the lessor‟s total purchase costs (residual value is
typically between 0% - 5% of original acquisition price),
cover his interest costs and provide him profit. The lessee
carries the risk of obsolescence, and costs of maintaining
the asset in good working condition and insuring it. The
lessee typically has the right to purchase the asset at the
end of the lease contract for a nominal fee.Hire purchase is
a hybrid instrument also providing an alternative to bank
financing for the purchase of equipment. The instrument
is typically used for retail or individual financing of
motorcycles, sewing machines, refrigerators, and other
small ticket items. The lessee tenders a higher down

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payment (sometimes up to 30% of the purchase price) and,
with each lease payment an increasingly higher percentage
of ownership is transferred to the lessee, thus building up
equity. Ownership transfer is automatic once all required
payments are made. Compared to a financial lease, this
arrangement is judicially less secure for the lessor because
the lessee is part owner of the asset. On the other hand,
lessees have a sufficiently large stake in the equipment
being acquired, to avoid the risk of losing that stake
through default.An operating lease is not a means to
finance equipment purchase. The lessee contract for short
term use of equipment the leasing company has on hand,
e.g., car rentals. The lessor recovers capital cost of the
equipment from multiple, serial rentals and the final sale of
the asset. Maintenance costs and risks of obsolescence are
borne by the leasing company (IFC, 1996).
2.5 CENTRAL BANK GUIDELINES AS IT RELATE
TO FINANCING OF SME
In order to increase access to credit by the small and
medium enterprises, the Central Bank of Nigeria and the
Federal Ministry of Finance, on behalf of the Federal
Government, obtained a World Bank Loan for small and
medium enterprises. The total project cost was US$451.8
million, of which the World Bank provided US$270
million or 64 per cent. The CBN established an SME
Apex Unit in the Bank in 1990 to administer the credit
components and other related activities of the World Bank
loan in order to facilitate project implementation. Loans
disbursement under the Scheme ceased in 1996.Bothered
by the persistent decline in the performance of the
industrial sector and with the realization of the fact that the
small and medium scale industries hold the key to the
revival of the manufacturing sector and the economy, the
Bankers‟ Committee in 1999, initiated the Small and
Medium Industries Equity Investment Scheme (SMIEIS)
aimed at ensuring assistance to small-scale industries.
Under this new scheme, banks are required to set aside
10.0 per cent of their profit before tax for investment in
small-scale industries in the country. A bank‟s investment
in the scheme is conceived to be in the form of equity
participation, project packaging/monitoring, advisory
services and nurturing of specific industries to maturity, as
well as equipment leasing. The SMIEIS was renamed
Small and Medium Equity Investment Scheme (SMEEIS)
in March, 2005, to broaden the scope of activities that can
be funded under it. As at 30th May, 2006, the total fund set
aside by banks was ₦40.735 billion. During the same
period, 16 projects valued at ₦2,665,781,000.00 were
verified and confirmed. The cumulative investment made
by the banks in 225 projects was ₦14.768 billion. On
sectoral basis, the total value of investments recorded in
the real sector amounted to ₦7.5 billion (50.79 per cent) in
145 projects, while service related sector accounted for
investments amounting to ₦7.268 (49.21 per cent) in
projects (CBN Briefs 2006 – 2007 Edition: 8).
3. PRESENTATION OF DATA ANALYSIS
AND INTERPRETATION
A total of forty (40) copies of questionnaire were
administered to the respondents and all were recovered.
The analyses of the data are shown on tables based on the
research questions and hypotheses for the study. Table 1 in
Appendix shows how questionnaire were administered in
the two chosen organisations with 65% (26 copies of
questionnaire) distributed at Plantgate and 35% (14 copies
of questionnaire) distributed at Shalom. Table 2 in
Appendix shows the gender distribution of the
questionnaire to the respondents. From the table, 30
copies of the questionnaire were shared among the male
while 10 copies were share among the female. That is
75% to the male and 25% to the female.Again, we had
100% nationality from the respondents as all the
respondents are from this great country, Nigeria and the
respondents held different positions within the
organisation.The data shown in Table 3 in Appendix
indicates that out of the total respondents, 27.5% are in the
lower level cadre, 57.5% are in the Middle level cadre and
15% are at the top level cadre. The indication is that we
have more of people in the middle level cadre as
respondents and to certain extent, information provided by
such group can be relied upon and considered more viable
to use.
From Table 4 in Appendix, 15% had worked with the
organisations for below 5 years; 55% had worked for
between 6 and 10 years; 30% had worked for the
organisations between 11 and 15 years while nobody had
worked for 16 years and above among the respondents.
Research Question 1: Does a small and medium scale
industry obtain adequate institutional credit? Table 5 in
Appendix takes care of the needs of research question 1.
From Table 5, the analysis revealed that small and medium
scale industries did not obtain adequate institutional credit
facilities from commercial banks with a total score of 120
and mean score of 3.00 while small and medium scale
industries cannot progress without adequate institutional
credit from commercial banks and it is very necessary for
small and medium scale industry to obtain adequate
institutional credit from commercial banks with total score
of 123 and mean score of 3.09. From the above, the last
two factors are very vital and relevant to the growth of the
organisation.
Research Question 2: Are they aware of the lease
financing technique whereby companies can procure
required plant and machinery without making an outright
payment for them? Table 6 in Appendix takes care of the
needs of Research Question 2. From Table 6 in Appendix,
the analysis revealed that the companies are generally
aware of various leasing financing techniques with total
score of 134 and mean score of 3.35; companies are aware
of the leasing technique that allows one to procure required
plant and machinery without outright payment with total
score of 174 and mean score of 4.35 and that companies
knows where to procure plant and machinery without

International Journal of Management Excellence
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outright payment with total score of 130 and mean score of
3.26 while the fact that there are suitable leasing financing
techniques for companies are not relevant and not
significant with total score of 88 and mean score of 2.20.
Research Question 3: If you are aware; have your
company made any effort in order to finance your
company through leasing? Table 7 in Appendix takes care
of the needs of Research Question 3. From Table 7 in
Appendix, the analysis revealed that companies needs
finance through leasing techniques; that they are currently
making efforts to finance their companies‟ through
equipment leasing and that they have personnel in charge
of the company‟s finance who can handle the situation
with their total and mean score above the benchmark.
Research Question 4: If your answer to question three is
yes, what has the use of leasing resulted to? Table 8 in
Appendix takes care of the need for Research Question 4.
Table 8 in Appendix, shows that the leasing allows the
business entity to preserve its cash resources to meet
working capital needs; leasing can be arranged simpler and
quicker than conventional bank loans and simpler security
arrangements in combination with less stringent
requirements with their total and mean score equal and/or
higher than the benchmark.
Research Question 5: Will your company be in the
position to advice other companies to resort to leasing as
means of finance to their companies? Table 9 in Appendix
takes care of the needs of Research Question 5. As
revealed by the analysis of Table 9 in Appendix,
companies recommends leasing as a source of finance to
small and medium scale industries; they also assist other
companies to acquire equipment through leasing as a
source of finance and that small and medium scale
industries that did not use leasing as a source of finance
might not be able to fund their business adequately as their
total and mean score falls within the range of the
benchmark.
Research Question 6: Do commercial banks help small
and medium-scale enterprise in getting lease facilities?
Table 10 in Appendix takes care of the needs of Research
Questions 6. From Table 10 in Appendix, all factors
considered formed the assistance on leasing facilities from
commercial as they all fall within the benchmark with their
total and mean score.
Research Question 7: If your answer to question six is
yes; do you feel that commercial banks have granted
reasonable leasing facilities in accordance with the Central
Bank of Nigeria prescribed ceiling on lease portfolio?
Table 11 in Appendix takes care of the needs of Research
Question 7. From the analysis of Table 11 in Appendix, all
the factors fall below the range of the benchmark
calculated, except for the fact that small and medium
enterprises do outright purchase more than leasing
equipment and machinery notwithstanding the leasing-
portfolio management of the commercial banks.
Research Hypothesis 1: There is no significant effect
between the small and medium scale enterprises poor
leasing attitudes and the organisation funding.
Table 12 takes care of the needs of Research Hypothesis 1
(H01)
Table 12 Chi-Square Table of significant relationship
between
Degree of Freedom = 4 – 1 = 3
X2 Calculated Value = 15 and
X2 Critical/Table Value @ 0.05 @ 3 = 7.815
From Table 12, the calculated value of chi-square at 3 (r-1)
degree of freedom and of 5% level of significance is 15
higher than the table/critical value of 7.815. Since, the
decision rule says that the alternative hypothesis should be
accepted if the calculated is more than the critical or table
value. Therefore, in this case we accept the alternative
hypothesis that says there is significant relationship or
effect on the small and medium scale enterprises poor
leasing attitudes and their organisation funding. The
projection was based on question 1 under the G category
of the questionnaire.
Research Hypothesis 2: There is no significant
relationship between equipment leasing as a source of
finance for small and medium scale business in Nigeria
and the company performance.
Table 13 takes care of the needs of Research Hypothesis 2
Table 13 Chi-Square of Relationship between
O
E
O – E
(O – E)2
(O – E)2 ÷E
19
10
9
81
8.1
19
10
9
81
8.1
1
10
-9
81
8.1
1
10
-9
81
8.1
X2 =
32.4
Degree of Freedom = 4 – 1 = 3
X2 Calculated Value = 32.4 and
X2 Critical/Table Value @ 0.05 @ 3 degree of
freedom = 7.815
From Table 13, the calculated value of chi-square at 3 (r-1)
degree of freedom and of 5% level of significance is 32.4
higher than the table/critical value of 7.815. Since, the
decision rule says that the alternative hypothesis should be
accepted if the calculated is more than the critical or table
value. Therefore, in this case we accept the alternative
hypothesis that says there is significant relationship
between equipment leasing as a source of finance for small
and medium scale business in Nigeria and the company
performance. The projection was based on question 3
under the F category of the questionnaire.
O
E
O-E
(O- E)2
(O – E)2÷E
20
10
10
100
10
10
10
0
0
0
5
10
-5
25
2.5
5
10
-5
25
2.5
X2 =
15

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4. DISCUSSION OF FINDINGS,
CONCLUSION AND
RECOMMENDATION
The essential focus of this study is to show another source
of funding an organisation through equipment leasing than
the usual outright purchase by small and medium scale
enterprises. It further tries to show some of the rules as
stipulated to commercial banks by the apex bank as to the
assisting the small and medium scale enterprises to assess
the facility for the sustainability of our economy as shown
in Sule (2013) that this sector form the major sector of
business in most economy especially that of Nigeria.
4.1 DISCUSSION OF FINDINGS
Findings in this study will be grouped and discussed under
following broad sub-headings:
 Financial enemies of small and medium scale
businesses
 Concept of leasing
 Types of leasing
 Central bank guidelines as it relates to financing
of Small and medium scale enterprises.
4.1.1 FINANCIAL ENEMIES OF SMALL AND
MEDIUM SCALE BUSINESSES
This study revealed that the known major enemy of small
and medium scale business is the commercial banks as
they prefer giving credit facilities to their customers to
assisting them in having a lease agreement to procure their
equipment and machineries. This is against the instruction
by the Central Bank of Nigeria as to lease-portfolio
management to small and medium scale enterprises to be
able to assess fund for having equipments and machineries
on lease rather than outright purchase. Most of these
commercial banks divert such fund into loans which to
them attract more interest than lease arrangement.Also,
most of the companies have the assumption that the
transaction will be too lengthy instead they prefer buying
such equipment and machineries or entering into a lease
agreement without any intermediary like the commercial
bank.
4.1.2 CONCEPT OF LEASING
The concept of leasing is mainly to have an equipment or
machinery in your possession while you have not yet paid
for it. In most cases, you have the option of buying or just
paying what can be called a rental fee for the period such
equipment is in your care. This will really assist in
prudent financial management of the organisation as such
fund for the buying of the equipment can quickly be used
to take care of other important activities. This study
revealed that one of the problems of funds in organisations
is that they do not make use of the lease arrangement
rather they go for outright purchase of the equipments and
machineries and where they make use of the lease
arrangement, they do not always take the full advantage of
the source of fund.
4.1.3 TYPES OF LEASING
There are two main types of leasing – the operating and the
financial leasing. There is much difference between the
two types of lease arrangement and as such, seeking for
any of the two require much understanding of the leasing
arrangement so that one will not enter into a contract that
will end up being a problem in the future. It must be noted
that most of organisations get confused on which of the
lease agreement to enter into and the commercial bank that
would have been of assistance are more interested in
giving out cash loan than getting involved in leasing. The
study revealed that most of these organisations either buy
out-rightly or buy on the local hire purchase of paying
almost 200% of the cost price of the equipment and/or
machinery.
4.1.4 CENTRAL BANK GUIDELINES AS IT
RELATES TO SME FINANCING
The common saying among Nigerians is that laws are
made in this country for a section of people not for
everyone. The rule is there for commercial banks to assist
small and medium scale enterprises to enjoy funding their
organisation with leasing arrangement instead of buying
the equipment and machinery with the little funds
available to them. The big but over and above this issue is
that for law to be followed and adhered to in this country,
there must be a continuous monitoring and putting a strong
penalty on the defaulter. This study revealed that the laws
and guidelines had been set by Central Bank of Nigeria as
the apex bank that commercial bank must help the small
and medium scale enterprises to assess equipments and
machineries on lease arrangements. But the commercial as
revealed in this study is that commercial banks enjoy credit
facilities on cash basis and they cannot be blamed
considering the kind of economy Nigeria is running where
everybody wants to survive by all means considering the
consolidation and capital increase placed on commercial
bank by the central bank.
4.2 SUMMARY OF THE FINDINGS
Some of the findings in this study include:
1. Small and medium scale enterprises do not assess
lease but buy the equipment and/or machineries with the
little funds available to them.
2. Small and medium scale enterprises are not very
conversant with the gains attached to lease arrangements
like tax reduction and so on.
3. Small and medium scale enterprises had not
exhaust leasing as a source of funds and do much
„damage‟ to their available meagre fund.
4. Overall performance of the small and medium
scale enterprises are usually affected negatively and in
most cases affected the continuous existence of such
organisations.
4.4 CONCLUSION
The research work was conducted to examine equipment
leasing as a source of finance for small and medium scale
business in Nigeria and using two organisations in
Abeokuta, Ogun State as the case study. Based on the
analysis of the responses of the respondents and the major

International Journal of Management Excellence
Volume 2 No. 3 February 2014
©TechMind Research, Canada 253 | P a g e
findings discovered in the analysis, the researcher
concluded that equipment leasing as a source of finance for
small and medium scale business in Nigeria have a very
significant relationship with the company performance,
just as it was revealed in Sule (2013) that your
organisation investment determine your level of profit and
your level of profitability determine where you will be
categorized as an organisation. Equipment leasing has a
direct impact on the management of the organisation fund
which will affect the level of the organisation performance.
As a result, every organisation should endeavor to lease
equipments and/or machineries rather than purchasing
them on cash and carry basis.
4.5 RECOMMENDATIONS
Based on the findings of this research work and the
conclusion, the following recommendations will reduce
organisational performance.
1. Organisations should have a sole department or
Strategic Business Unit in charge of this particular
responsibility.
2. The staff in such department or SBU must be well
trained, retrained and well motivated adequately.
3. The banker to the organisation should be made to
assist in leasing of equipment and/or machineries as a
source of finance to them.
5. REFERENCES
[1] Agundu, P.U (2000). Finance Finesse, Outreach
Publications, Port Harcourt Nigeria
[2] Ameinghomwan, P.O (2004). Small business
management in Nigeria, Lagos, Matkos Publisher Ltd.,
vol.1.
[3] Banmbach, C.M (1992). Basic small business
management, Obafemi Awolowo University Press Ltd.
[4] Bernd, B. and Haye, S. (1996). Collateral,
collateral law, collateral substitutes, poverty-oriented
banking programme International labour office, Geneva.
[5] CBN (1988). Central Bank of Nigeria Bulletin.
[6] CBN (2006-2011). Central Bank of Nigeria
Briefs, Series No. 2006-2007/01-12
[7] Gallardo, J. (1857). Leasing to support small
business and microenterprises-World bank working paper.
[8] IFC (Laurence W.C et al) (1996). Leasing in
emerging markets, Washington D.C: The World and
International Finance Corporation pp.7-8.
[9] Ikharehon, J.I (2000). An Introduction to small
scale business management, Benin, Best Printers, Benin
City.
[10] Jaja, S.A (2000). The Entrepreneurship
paradigm, Pearl Publishers, Port Harcourt, Nigeria.
[11] Jamodu, K. (2001). Small business enterprises,
Lagos, Elfoda Ventures.
[12] Kesavan, R. (2002). Small business and
entrepreneurship development, The US Experience,
Gregory W. Ulforts, DBA.
[13] Osazee, B.E and Amao, A.R (1981). Managerial
Finance, Benin, University of Benin Press.
[14] Richard, C. and Stephen, E. Patners (2010).
Equipment Leasing, August, Slaughter and May.
[15] Sule, O.E (2013). Low and high potentials of
entrepreneurial development within the framework of
indigenous small scale management in Africa,
International Journal of Business Administration. 4(3), 41-
47, http://dx.doi.org/10.5430/ijba.v4n3p41.
[16] Susan, S.K.L (2003), Capital and operating
leases, A Research Report, Federal Accounting Standards
Advisory Board, October Issue.
APPENDIX
Table 1: Questionnaire Distribution among the sampled branches
ORGANISATIONS
NO. OF RESPONDENTS
%
PLANTGATE
26
65
SHALOM
14
35
Total
40
100
Source: Survey Data, 2013
Table 2: Gender Distribution Table
SEX
RESPONDENTS
%
Male
30
75
Female
10
25
Total
40
100
Source: Survey Data, 2013
Table 3: Management Level of Respondents in the Organisation
Management Level
Number of Respondents
Percentage (%)
Lower Level
11
27.5

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©TechMind Research, Canada 254 | P a g e
Middle Level
23
57.5
Top Level
5
15
Total
40
100
Source: Survey Data, 2013
Table 4 Length of Service distribution
Number of Service Year
Number of Respondents
Percentage (%)
5 Years below
6
15
6 – 10 Years
22
55
11 – 15 Years
12
30
16 Years and Above
0
0
Total
40
100
Source: Survey Data, 2013
Table 5 Adequate Institutional Credit for Small and Medium scale Industry
Item
No
Description
Total
Score
Mean
Score
1.
Small and medium scale industries do obtain adequate institutional credit from
commercial banks.
120
3.00
2.
Small and medium scale industries cannot progress without adequate institutional credit
from commercial banks.
125*
3.13*
3.
It is necessary for small and medium scale industry to obtain adequate institutional
credit from commercial banks.
125*
3.13*
375
9.39
Benchmark = 123 3.09
* Significant
Source: Survey Data, 2013
Table 6 Leasing financing techniques for small and medium scale industry
Item
No
Description
Total Score
Mean
Score
1.
Our company is generally aware of various leasing financing techniques.
134*
3.35*
2.
Our company is aware of the leasing technique that allows one to procure required plant
and machinery without outright payment.
174*
4.35*
3.
There are suitable leasing financing techniques for our company.
88
2.20
4.
Our company knows where to procure plant and machinery without outright payment.
125*
3.13*
609
15.23
Benchmark = 130 3.26
* Significant
Source: Survey Data, 2013
Table 7 Financing Company through leasing
Item
No.
Description
Total Score
Mean
Score
1.
Our company needs finance through leasing techniques.
174*
4.35*
2.
We are currently making efforts to finance our company through equipment leasing.
174*
4.35*
3.
Our company has personnel in charge of the company‟s finance who can handle the
situation.
174*
4.35*

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©TechMind Research, Canada 255 | P a g e
613
15.34
Benchmark = 174 4.35
* Significant
Source: Survey Data, 2013
Table 8 Result of leasing techniques
Item
No
Description
Total
Score
Mean
Score
1.
Leasing allows the business entity to preserve its cash resources to meet working capital
needs.
149*
3.73*
2.
Expands and increase the production level of workers.
148
3.7
3.
Leasing can be arranged more quickly and simply than conventional bank loans.
149*
3.73*
4.
Availability of tax incentives for business entities.
148
3.7
5.
Simpler security arrangements in combination with less stringent requirements.
149*
3.73*
743
18.59
Benchmark = 149 3.72
* Significant
Source: Survey Data, 2013
Table 9 Recommendations for small and medium scale industry on equipment leasing as source of finance
Item
No.
Description
Total
Score
Mean
Score
1.
Our company recommends leasing as a source of finance to small and medium scale
industries.
125*
3.13*
2.
Our company should assist other companies to acquire equipment through leasing as a
source of finance
125*
3.13*
3.
Small and medium scale industries that do not use leasing as a source of finance might not
be able to fund their business adequately.
125*
3.13*
375
9.39
Benchmark = 125 3.13
* Significant
Source: Survey Data, 2013
Table 10 Assistance on leasing facilities from commercial banks
Item
No
Description
Total
Score
Mean
Score
1.
Commercial banks are willing to assist small and medium scale with strong collateral.
134*
3.35*
2.
Commercial banks prefer to assist larger and well established businesses with leasing
facilities.
134*
3.35*
3.
Commercial banks are often unable to undertake term lending.
134*
3.35*
402
10.05
Benchmark 134 3.35
* Significant
Source: Survey Data, 2013
Table11 Commercial Banks compliance with Central Bank Directive on Lease
Item
No.
Description
Total
score
Mean
Score
1.
Small and medium enterprises buy on cash basis more than leasing equipment and
machinery in the last two years.
118*
2.95*
2.
Commercial banks provide more incentives to small and medium enterprises to procure
72
1.80

International Journal of Management Excellence
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©TechMind Research, Canada 256 | P a g e
more equipment/machineries on lease in the last two years than outright credit facilities.
3.
Central bank is frowning at commercial banks that did not help to encourage small and
medium enterprises to lease.
89
2.23
4.
Small and medium enterprises enjoy lease facilities provided by commercial banks as a
result of central bank directive.
81
2.03
360
9.01
Benchmark = 90 2.25
* Significant
Source: Survey Data, 2013