THE EFFECT OF CREDIT RISK ON THE SUSTAINABILITY OF SMALL-SCALE BUSINESSES IN NIGERIA

Small-scale businesses in Nigeria have faced a persistent and multidimensional challenge arising from credit risk, which has undermined their ability to remain financially, operationally, and strategically sustainable. Access to credit remains highly constrained due to stringent collateral requirements, high interest rates, and short repayment periods, all of which has increased the probability of loan default and weaken the financial base of small enterprises. This study examined the effect of credit risk on the sustainability of small-scale businesses in Nigeria, with a focus on financial, operational, and strategic dimensions. The research was guided by three objectives: to assess the effect of credit risk on financial sustainability, to investigate its influence on operational sustainability, and to analyze its impact on strategic sustainability. Three hypotheses were formulated to test these relationships. The study adopted a descriptive survey research design, using primary data collected through structured questionnaires administered to 323 randomly selected small-scale businesses in Jos metropolis, Plateau State. Data were analyzed using descriptive statistics, correlation, and regression techniques with the aid of SPSS software. The findings reveal that credit risk has a significant effect on the financial, operational, and strategic sustainability of small-scale businesses in Nigeria, although the magnitude of influence varies across the dimensions. The results highlighted that poor credit management practices, inadequate risk assessment mechanisms, and limited access to affordable credit facilities expose SMEs to sustainability challenges. The study concluded that effective credit risk management is essential for the survival, competitiveness, and long-term growth of small-scale businesses. The study recommended that business operators adopt sound financial practices, financial institutions design credit schemes suited to SMEs, and entrepreneurs undergo training in credit management and financial literacy. It further suggested that alternative financing options such as cooperatives and crowdfunding should be explored to minimize over-reliance on risky credit. This study contributes to knowledge by empirically validating the effect of credit risk on SME sustainability in Nigeria and providing practical insights for policymakers, financial institutions, and entrepreneurs on strategies for enhancing resilience and competitiveness.