Bankers’ Perceptions of Successful SMEs Loan Applications: A Case Study from Libya

Abstract

This paper investigates the criteria used by loan officers at Bank Al Tanmeya when assessing SMEs loan applications and the most frequent reasons that lead to turn these applications down. To achieve this, a qualitative research method was adopted. The data were gathered using semi-structured interviews with loan officers at the bank. The results show that the ability to provide collateral and good business plans alongside the profitability of the business are very important. Other criteria such as the applicants' credit history, their business experience and the type of business activity are also important. Further, the results indicate that SMEs loan applications are generally rejected on the ground that they are not robust enough from the bankers' viewpoint. While lack of collateral is the most frequent reason, other reasons include weaknesses in business plan, concerns about the loan repayment, and doubts about the viability of business ventures. These results have the ability to increase awareness and broaden understanding of the factors that may affect SMEs access to bank loans from a supply side perspective.

Sector Lending Concentration and Credit Risk: An Evaluation of Lender Perceptions in Tanzania

“…The first is existing debt (CDebt), which however, is rarely considered important to Microfinance Institutions (MFIs) and Small and Medium Enterprises (SMEs) who rely on soft information (Abdulsaleh & Worthington, 2016;DeZoort, Wilkins, & Justice, 2017;Lassoued, 2017;Harif, Hoe, & Zali, 2011;Berger, Minnis, & Sutherland, 2017). The second is income, capacity and savings, all of which captures the ability of the borrower to meet the periodic repayment of the interest and principle (Adzobu et al, 2017;Laib, 2013;Abdulsaleh & Worthington, 2016;Koomson et al, 2016). There were cases however, where these capacity-related considerations had not been significant (Lassoued, 2017).…”

“…There were cases however, where these capacity-related considerations had not been significant (Lassoued, 2017). With regard to income (CIncome) the PLR tended to be relatively lower among high-income borrowers than low-income ones, thus providing an explanation for credit refusal among the poor (Le & Nguyen, 2018;Pham & Lensink, 2008;Koomson et al, 2016); and Credit history (CredH) (Abdulsaleh & Worthington, 2016).…”

“…Additional considerations included concerns with collaterals (CColla) and business plan (CBplan) (Abdulsaleh & Worthington, 2016). Both of these reflected the applicant's creditworthiness and borrower's character, especially in the context of lending to highly risky sectors, such as the MFIs and SMEs (Abdulsaleh & Worthington, 2016;Laib, 2013;Pham & Lensink, 2007).…”

The antecedents of success among small- and medium-sized enterprises: evidence from Ghana

“…Access to finance is one of the external factors. According to Abdulsaleh and Worthington (2016), formal financial intermediaries, such as commercial banks, often refuse to provide credit and other financial assistance to some SMEs because of the high cost of small transactions, lack of traditional collateral, lack of basic requirements for financing and geographic isolation. By doing so, these institutions ignore the enormous potential in talents and entrepreneurship of this stratum of society.…”

An Empirical Study on Lending Pattern and Perception of Commercial Banks Towards Small and Medium Enterprises Lending

“…Effective policies should be developed to ensure commercial banks grow. Abdulsaleh and Worthington (2016) the authors investigate the criteria used by loan officers at Bank Al Tanmeya when assessing SMEs loan applications and identify the key reasons leading to SMEs loan applications being denied. Semi-structured interviews were conducted to collect the data.…”