The Effects of Behavioral Factors on the Creditworthiness of Small-Scale Enterprises

Main Focus Of The Chapter

The management of a small business is significantly different from that of a large corporation. Besides the existence of differences in the number of staff employed in the company, there are a number of peculiarities to small business finance that make them unique. One is that most financial and strategic decisions are made by a single individual who is most likely the owner of the business.

This research shall find out how credit worthy small businesses are, then compare creditworthiness to business owner’s rationality. In determining the creditworthiness of a borrower, financial condition, financial stability, level of profitability, working capital turnover, performance, liquidity, production plans, the amount and terms of overdue loans amongst other indicators are considered.

It can be argued that small scale businesses contribute immensely to the socioeconomic and political development in any given country. In terms of living standards and social status, people affiliated to small scale businesses make up majority of the population in developing countries. They occupy a special niche in society by virtue of the fact that they act as both direct producers and consumers of goods and services. Small businesses operate mainly in national markets and are directly related to mass consumer of goods and services. Their small size, level of technological advancement, production methods and management flexibility allows them to respond to the changing market conditions in a timely manner.