Improving access to debt finance by start-up SMEs in Kampala Central Division

Abstract

Despite the fact that financial institutions have identified the SME sector as a fast-growing sector in the country, there are several constraints serving as bottlenecks to SMEs in accessing finance from financial institutions. This study examines difficulties SMEs face in accessing loans. In conducting this study, questionnaires were administered to SMEs. The following major findings came to the fore; Repayment periods on loans to SMEs are too short making it very difficult to embark on any developmental or expansion projects, most SMEs, do not understand terms and conditions, and strict vetting of loan applications. It was also found out that small business owners’ main source of debt finance is the bank and loans from friends. The study suggested that government should institute some form of tax incentives to financial institutions involved in SME lending and formulate regulatory laws to help loans recovery. SME associations must be established to unite them and serve as guarantors whenever loans are accessed.

Key words: Debt finance, SMEs, Financial institutions