Credit terms, access to finance and financial performance of SMES in Kampala

Abstract

This study was motivated by the difficulty faced by SMEs in accessing credit from commercial banks to sustain business growth and financial performance. The purpose of the study was to establish the extent to which credit terms and access to credit have affected financial performance of SMEs in Kampala. The study was guided by the following objectives; to establish relationship between credit terms and financial performance of SMEs in Kampala, to establish the effect of credit terms and access to credit on financial performance of SMEs in Kampala and to establish the relationship between access to credit and financial performance of SMEs in Kampala.

The study was based on a correlation survey design. Primary data was collected using self administered questionnaires issued to respondents who were owners/managers of the business. A sample size of 384 respondents was selected from a population of 110,714 SMEs using simple random sampling method. Data was analyzed using SPSS version 17. Correlation and regression analysis was carried out to establish the association among the variables.

The results indicated a significant positive association among the variables of credit terms, access to credit and financial performance of SMEs. Credit terms contribute 33.1% of the variance in financial performance in SMEs. Regression analysis revealed that access to credit contributed 54.3% of the variance in financial performance of SMEs. In order to improve access to credit by SMEs, commercial banks and other lending institutions need to adjust credit terms in line with what borrowers can afford.