The Effect of Debt Financing on the Survival of Small Scale Enterprises, a Case Study of Ntinda, Nakawa Division

Abstract

Small scale businesses present the most dynamic economic foundation for growth amongst Ugandans today through income and employment creation. However, this vital sector has been greatly affected by the high interest rates being charged by debt financing institutions. The main objective of the study is to assess the effect of debt financing on the survival of Small Scale businesses in Uganda. The researcher not only employed cross sectional research and descriptive but analytical research design also.

Data was collected based on the objectives and questionnaires were distributed to 40 respondents. The researcher established that high interest rates charged on borrowings has greatly affected the survival as well as investment levels in SSBs forcing vendors and young entrepreneurs to depend on own savings and funds from friends and relatives.

The findings of the study also established that the interest rates on debt finances were high which acted as stabling block against borrowing and thus limiting the success of Small scale businesses amongst the vendors in The Ne Ntinda Market. Lack of enough training amongst the vendors on how to use and manage the loans was also noted as a limiting factor to debt financing and thus failure of lifting the standard of Small scale businesses.

However, the researcher recommended that interest should be reduced in order to create a favorable room for borrowing low interest loans a step that will create a remarkable difference on the success of Small scale businesses. It was also recommended that vendors are sensitized before the acquisition of loans from these financing institutions.

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