Debt financing by commercial banks and the profitability of small and medium size enterprises :

Abstract

This study was to establish the extent to which debt financing of SMEs by commercial banks on the profitability of SMEs in Mayuge town council. Specifically, the study sought to determine the effect of interest rates on the profitability of SMEs, to determine the effect of collateral requirements on profitability of SMEs and also to establish the effect of government policies on the profitability of SMEs. The study used descriptive correlation, comparative and cross sectional survey designs. Data collected from 80 respondents using self-administered questionnaires as the key data collection instruments. Data was analyzed using frequency counts, means, and SPSS. The findings revealed that there was an effect of interest rates on the profitability of SMEs, the effect of collateral requirement5s on the profitability of SMEs. The debt financing brings about effective, efficiency operations of the business which leads to profitability of SMEs. Recommendations based on the findings were that SMEs should embrace the use of independence in order to ensure profitability, SMEs should also focus on financial accounting and expertise programmed in order to improve on the profits.