Does the Legal Form of Small and Medium Enterprises Determine their Access to Capital?

Document Type: Original Research


1 Department Liberal Studies, Cape Coast Polytechnic, Cape Coast, Ghana

2 Ghana Education Service, Monitoring Department, Cape Coast, Ghana


Small and Medium Enterprises [SMEs] in Ghana are often denied capital by the financial institutions. Hence, this study utilized data from self-administered questionnaires to 123 SME operators in the Cape Coast Metropolis to ascertain if the financial institutions consider the legal form of business ownership of SME before lending capital. Descriptive statistics, Chi-square and Hierarchical regression were employed to analyse data. We failed to reject the null hypothesis which implied that the financial institutions do not put much emphasis on the legal form before lending capital to SMEs, neither does the legal form determine the amount of capital borrowed. The recommendations were that the National Board for Small Scale Industries (NBSSI) must ensure that all the SMEs are registered and their business operations formalized. Besides, they should also train SME operators on basic business management skills, particularly, keeping accounting records. Government SME financing scheme managers must work professionally by administering the funds to SMEs based on merit and not on other irrelevant considerations such as political affiliation, cronyism or nepotism. Finally, SMEs must revamp their various trade associations to create a formidable union.     


Abor, J. & Biekpe, N.  (2006). Small Business Financing Initiatives in Ghana.  Problems and Perspectives in Management, 4(3), 69-77.
Abor, J. & Quartey, P.  (2010). Issues in SME Development in Ghana and South Africa. International Research Journal of Finance and Economics. Issue 39 available at
Asare, O. A. (2014). Challenges Affecting SME’s Growth in Ghana.  International Journal of Sustainable Development, 7, 6.
Barringer, B.R., & Ireland, R. D. (2006). Successfully launching new venture   (2nd ed.). New Jersey: Pearson Education, Inc.
Dean, D. L., & Bulent Mengui, Christopher, P. (2000). Revisiting firm characteristics, strategy and export performance relationship: a survey of the literature and an investigation of new Zealand small manufacturing firms. Industrial Marketing Management, 29, 461.
Fatoki, O. & Garwe, D. (2010). Obstacles to the growth of new SMEs in South Africa: A principal component analysis approach. African Journal of Business Management, 4, 5.
Frimpong, Y. C. (2013). SMEs as an engine of social and economic development in Africa.
Frimpong, Y. C. (2014). Ghana: Making SME Finance Schemes Effective. NewsGhana. Com. Gh. 
Helm, B., (2006).  Access for all: Building inclusive financial systems. Washington, DC World Bank. 
Imoisi Anthony Ilegbinosa & Ephraim Jumbo (2015). Small and Medium Scale Enterprises and Economic Growth in Nigeria. International Journal of Business and Management, 10, 3.
Ireghan, C. (2009).  Small Scale Business Development in Nigeria. In Ireghan, C. (Ed.), The Place of Small and Medium Scale Business in the development of a nation State. Nigeria: Lagos, Kaycee Publishers.
Kongolo, M. (2010). Job creation versus job shedding and the role of SMEs in economic development, African Journal of Business management, 4, 11.
Krejcie, R.V. & Morgan, D. W. (1970). Determining sample size for research activities.          Edu. Psychol. Meas., 30, 607-610.
Mensah, S. (2004). FINANCING SCHEMES IN GHANA. Presented at the UNIDO Regional Workshop of Financing Small and Medium Scale Enterprises, Accra, Ghana, 15-16 March 2004.
Mohd Aris, N. (2006). SMEs: Building Blocks for Economic Growth. Paper presented at the National Statistics Conference .
Nenek Brownhilder Ngek (2014). Determining high quality SMEs that significantly contribute to SME growth: regional evidence from South Africa. Problems and Perspectives in Management, 12, 4.
Omar, S. S., Arokiasamy, L. & Ismail, M. (2009). The background and challenges faced by the small and medium enterprises. A human resources development perspectives. International Journal of Business and Management, 4, 10, 95-102.
Osotimehin, K. O. , Jegede, C. A. & Akinlabi, B. H. (2012).  An Evaluation of the Challenges and Prospects of Micro and Small Scale Enterprises Development in Nigeria. American International Journal of Contemporary Research, 2, 4.  
Phillips, C. & Bhatia-Panthaki, S. (2007).  Enterprise development in Zambia: Reflections on the missing middle. Journal of International Development, 9, 793.
Reynolds, P. & Miller, B. (1988). Minnesota new firms study: an exploration of new firms and their economic contributions. Centre for Urban and Regional Affairs, 330 Hubert H. Humphrey Centre, 301 19th Avenue S., Minneapolis, Minnesota.
Stiglitz, J & Weiss (1981). Credit Rationing in Markets with Imperfect Information. American Economic Review, 81, 393-410.
Todaro, M. P. & Smith, S. C. (2011). Economic Development, Tenth Edition, Pearson Education Limited, England.
United Nations Conference on Trade and Development. (2011). Growing Micro And Small Enterprises in Least Developed Countries; The “missing middle” in LDCs. [Online]. Available from  [Accessed: August 4, 2011].
Ural, T. & Acaravci, S. K. (2006).  The effect of firm’s strategic factors on export and firm performance: A comparison of Permanent and Sporadic Exporters. Problem and Perspectives in Management, 4, 4.
Willemse, J. (2010).  The Forum SA, SME Failure Statistics [Online]available at: php? t = 7803 21st September, 2010. [Accessed March. 3, 2014].
Yeboah, A.M. (2015). Determinants of SME Growth: An Empirical Perspective of SME in the Cape Coast Metropolis, Ghana. The Journal of Business in Developing Countries, Vol. 14.