Borrowing for consumption rather than productive investment could threaten business survival and worsen financial difficulties, the Vice-Chancellor of Alex Ekwueme Federal University, Ndufu-Alike (AE-FUNAI), Professor Daniel Nwachukwu, and banking and finance expert, Professor Abel Ebeh Ezeoha, have warned.
The academics urged businesses, public institutions and other organisations to adopt responsible borrowing practices, manage financial risks and channel borrowed funds into investments capable of generating returns and supporting long-term growth.
They gave the advice during the 12th inaugural lecture delivered by Ezeoha, titled “Leveraging Under Constraints: The Act of Digging Hole to Fill a Hole.”
The lecture examined the challenges facing businesses, financial institutions, households and governments operating under limited financial resources, particularly in Nigeria’s economic environment.
Speaking at the event, Nwachukwu explained that borrowing could become a valuable tool for business expansion when the funds were invested in productive activities. However, he cautioned that poorly managed debt could place businesses under severe financial pressure and threaten their survival.
He commended Ezeoha for examining the financial pressures confronting Nigerians and the strategies individuals, businesses, banks and governments employ to manage limited resources.
The vice-chancellor also raised concerns about the practice of taking fresh loans to repay existing debts, questioning whether such a strategy could promote economic growth or deepen financial difficulties.
He noted that businesses and institutions must understand how to borrow strategically, manage risks and deploy available funds in ways that strengthen their financial positions.
According to him, the ability to distinguish between productive borrowing and debt that compounds existing problems remains essential to financial sustainability.
In his inaugural lecture, Ezeoha identified the use of borrowed funds for consumption and other non-productive activities as major factors that could undermine business performance.
He also highlighted asset mismatches as a financial challenge that could make borrowing less effective and increase the pressure on businesses struggling to meet their obligations.
The professor explained that established research in banking and finance emphasises the importance of maintaining an optimal capital structure, which involves balancing equity and debt financing.
He noted that businesses must carefully weigh the advantages and disadvantages of different funding options, including the potential dilution of ownership associated with equity financing and the risk of bankruptcy linked to excessive debt.
Ezeoha warned that an inappropriate capital structure could make borrowing harmful to a company’s survival, particularly when it faces persistent funding shortages.
He explained that determining the right balance between debt and equity depends largely on the internal characteristics and financial structure of individual businesses.
Ezeoha further identified company size and investment in fixed assets as important factors influencing access to long-term financing.
According to him, these characteristics can help businesses secure long-term debt and manage the challenges associated with borrowing under financial constraints.
His presentation underscored the need for businesses to assess their financial capacity, borrowing requirements and investment opportunities before taking out loans.
The discussion also highlighted the importance of directing borrowed funds towards activities capable of generating returns, strengthening operations and supporting long-term business growth.
The lecture provided insights into how organisations can make better financing decisions in an economy where access to capital remains a challenge for many businesses.
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