The effect of bank credit on performance of small and medium enterprises

Abstract

This paper looks at the effect of bank credit on the performance of small and medium sized enterprises in Kampala. The research builds from the fact that the following objectives are looked at critical to arrive at relevant analysis; the effect of bank credit on the performance of Small and Medium size enterprises in Kampala, the sources of finance for SMEs in Kampala, the factors inhibiting SME’s access to bank credit/loans in Kampala and suggest solutions. In carrying out the research, the methodology of the research was made up of the research design which was descriptive, and quantitative data was collected using open and closed ended questionnaires. The target population was that of the small and medium sized entrepreneurs in Kampala with a sample size of 60. The data analysis made use of tables and bar charts, which helped show how effective bank credit is on the performance of small and medium sized enterprises in Kampala, mainly to the SMES in Nakawa, Katwe and Kajjansi. The findings or results indicated that, bank credit greatly improved on the profits of the business. Lack of sufficient capital also was noted as being the cause of poor performance of SMES. Lack of sufficient capital did stand out a factor leading to poor performance of the SMES in Kampala and many people feared to get loans due to the fact they lacked collateral security and also the payment became very difficult. Low savings due to low income earned caused the fear to show the financial statements since this was not enough to meet up to the high loans the business wanted and it was established that gender was a factor that determined access to credit because the numbers were skewed towards women. It is however important to point out that age was not a factor in considering one for credit. Various studies and literature put forward the fact that vigorous provision of credit to various entrepreneurs could help to boost their businesses and consequently eradicate poverty and therefore bring about growth in the economy