Can Owner-Manager Characteristics Signal Small Business Loan Default Propensity?

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.

African Immigrant Entrepreneurship in the UK

“…Hagos et al, 2019;Opute et al, 2020). Human capital -the set of skills and knowledge gained through the learning process of an individual to enhance productivity (Xu & Fletcher, 2017), is pivotal to business performance (Eresia-Eke, 2013;Opute et al, 2020). This importance of human capital in ethnic businesses has also been reiterated in recent literature on the cultural influences on entrepreneurial orientation of Igbo entrepreneurs in Nigeria (Igwe et al, 2018).…”

Forms of Capital and the Creation of Jobs by Immigrant-Owned Businesses In southern Africa

“…Strangely, Sandberg and Hoffer's (1987) study could not find a significant association between management skills and business performance. Eresia-Eke (2016) observes that studies that have found that management skills correlate negatively with business success are rare. These scholarly positions are not necessarily congruent and do not expound on the association, or lack of it, between management skills and employment creation in African immigrant-owned small businesses, particularly in the SADC region.…”