INFLUENCE OF BANKS’ CREDIT TERMS ON FINANCIAL PERFORMANCE OF SMALL MEDIUM ENTERPRISE IN BUNGOMA COUNTY
Abstract
This study was motivated by the different challenges faced by SMEs in accessing credit facilities from lending institutions to sustain business growth and financial performance. The purpose of the study was to establish the extent to which lending institutions’ credit terms have affected financial performance of SMEs in Bungoma County. The study was guided by the following objectives; to ascertain the effects of interest rates on the financial performance of SMEs in Bungoma, to determine the influence of collateral on the financial performance of SMEs in Bungoma lastly, to assess the effects of repayment period on financial performance of SMEs in Bungoma County. The study added to existing literature on financial performance of SMEs, credit terms in Bungoma County. It provided information and knowledge about the importance of credit worthiness to SMES which will help them improve their chances of getting credit. Information was relayed to lending institution about perceptions of their services by business enterprises which helped them improve service delivery. The study was based on a correlation survey design. Primary data was collected using self-administered questionnaires issued to respondents who were owners/managers or even business partners of the SMEs. A sample size of 150 respondents was selected from a population of 1500 SMEs using simple random sampling method. Reliability coefficient was used to measure the internal consistency items in a survey instrument to gauge its reliability. The higher the score, the more reliable the generated scale was. Data was analyzed using inferential statistics Correlation and regression analysis was carried out to establish the association among the variables. It was discovered that collateral, interest rate and repayment period have an impact on financial performance of small and medium enterprises in Bungoma County. It was hence recommended that further research to be done in the near future so as to also cover the other parts of the country and also establish the moderating effect of organizational factors on the relationship between lending policies and performance of SMEs. Future research is also encouraged to study other lending policies like the borrower’s characteristics, risks involved in lending and the amount of money lent so as to establish out if they have any effect on the performance of SMEs.
Key Words: Small Medium Enterprise, Financial Performance, Banks’ Credit Terms, interest rate, collateral security, loan Repayment period
CITATION: Wafula, J. P., & Miroga, J. (2020). Influence of banks’ credit terms on financial performance of Small Medium Enterprise in Bungoma County. The Strategic Journal of Business & Change Management, 7(2), 545 – 568.
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