Bank loans and financial performance of small business enterprises in Adjumani district, Uganda:
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Date
2019-07
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Kampala International University, College of Economics and Management.
Abstract
The main aim of the study was to examine the effect of bank loan on financial performance of
small business enterprises, a case study of Adjumani District. It was guided by the following
objectives; to examine the effect of commercial loan financing on the financial performance of
small business enterprise, to determine the effect of retained earnings financing on the financial
performance of small business enterprise and the effect of Trade Credit financing on the
financial performance of small business enterprise in Adjumani district. In the study a cross
sectional research design was used, where both qualitative and quantitative research methods
were used. The total number of respondents who participated in the study was 50 and these were
entrepreneurs of small business enterprises. Data was collected from respondents by use of
questionnaires and an interview guide as the research instrument. Data was analyzed using
tables and descriptions were done using percentages.
The study revealed that acquired assets pays off funding cost leaving the SBE with the asset
value. SBEs in their limited asset base have no potential of securing long term loans as a major
instrument of debt financing hence giving it a major constraint in borrowing funds to finance
their operations usage of funds increases investment prospects of SBE. Funds also increases
chances of $‘BE success, application of this funding reduces agency costs and SBE is able to
finance more projects increasing returns. It was concluded that commercial loanfinancing has a
positive effect on financial performance and this effect is statistically significant in predicting
financial performance of SBEs. SBEs that use commercial loan financing will expand their
business operations and experience significant increase in their profitability. Trade credit
financing has a positive and sign~Icant effect on financial peiforinance of SBEs. It therefore
follows that trade credit is a significant predictor of financial performance, SBEs that use trade
credit in financing their operations are likely to see their output and revenues increase thus
increasing their level of profitability. The study recommended that investors and managers of
SBEs should consider sources of business financing as important determinants offinancial
performance. SBEs should come together to form larger groups in order to access bigger
commercial loans from banks, micro finance institutions and other lenders which are cheaper to
source as they carry lower transaction costs and such costs are shared by S’BEs in the group
reducing its impact on individual SME’s financial performance.
Description
a research report submitted to college of economics and management as a requirement in partial fulfillment for the award of a bachelor of business administration (finance and accounting) of Kampala international university.
Keywords
Bank loans, financial performance, small business enterprises, Adjumani District.