Effect of credit financing on financial performance of selected Small and medium scale enterprises in Pallisa town council, Uganda.

Abstract

The study examined the effect of credit financing on the financial performance of small and medium scale enterprises in Pallisa Town Council. The objectives of the study were to determine the effect of long term loans on the financial performance of SMEs; to determine the effect of short term loans on the financial performance of SMEs and to determine the effect of trade credits on the financial performances of SMEs. The study used a descriptive research design with a population of 75 SMEs and a sample of 63 were drawn from financial services, wholesalers, contractors and ICT and a questionnaire was employed in the collection of data. The findings showed that there was a positive effect of long term loans on financial performance at (r=.420; F=12.409; p< 0.05), short term loans on financial performance at (r=.293; F=5.465; P<0.05) and for trade credit at (r=.463; F=15.835; p< 0.05). This implies that there was a positive effect of credit financing on the financial performance of SMEs in Pallisa Town Council. Therefore, the study recommended that improvement on the financial performance of SMEs relies on access to long term loans, short term loans and trade credit.