Abstract
The potential of small businesses is inhibited by a cocktail of problems of which inaccessibility to finance is pre-eminent. This problem is linked to the lenders’ risk estimation, often based on financial indicators which small businesses are not adept at using to signal their performance ability. This situation, especially in South Africa, with a history of a people who were previously disadvantaged does not aid the development of small businesses that may well be the antidote for overcoming the strain of poverty and unemployment in the country. This study stems from the human capital theory and investigated possible relationships between owner-manager characteristics and loan default propensity. The aim being to unveil non-financial variables, associated with the owner-manager which could be relied upon by lenders’ to estimate the loan default propensity of the small business borrower. Primary data collected in South Africa were empirically analysed for possible associations between owner-manager characteristics and loan default propensity. Results revealed business size-dependent differences in the association between certain ownermanager characteristics and business loan default propensity. The implication of this for all stakeholders is that considerations for small business lending should be sensitive to business size.
Highlights
Nguyen and Luu (2013) posit that SMMEs are perceived to be the backbone of any economies, given their contribution to national income
The study population comprised enterprises in the small business sector operating in the Durban area of South Africa
Of the five categories of age that were created for the study, the smallest group was that of owner-managers who were under 21years of age (4.31%) followed by those who were above 50 years (14.66%)
Summary
The importance of the small business sector to the development of the economies of most countries in the world has become widely acknowledged (Ladzani & van Vuuren, 2000; Rogers, 2002). Nguyen and Luu (2013) posit that SMMEs are perceived to be the backbone of any economies, given their contribution to national income. This, according to Liedholm (2002), can be attributed to the general perception of the potential contribution of small businesses to economies of nations; the result of which has made them a significant feature of the economic landscape of the world. In reality though, this much touted potential remains inert as the contribution made by the small business sector continues to fail to reflect it. The reason this kind of situation subsists, can be attributed to a number of constraints that beleaguer the sector
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