Impact of short-term loans on small and medium sized enterprises in Uganda: a case study of Kalerwe market in Kawempe division

Abstract

study aims to improve our understanding on the impact of short term loans and its application on the small and medium enterprises. The rate of improvement on SMEs performance in developing countries was significantly lower than in the developed world as a result of weak clients’ financial performance linked to high lending terms. A cross sectional survey and descriptive research design was used and questionnaire administered to the SMEs. The study aimed to assess the impact of short-term loans on Small and Medium Size Enterprises in Uganda. The study also incorporated other specific objectives among others to include; to analyze the relationship between demographic factors and intake of short-term loans, to analyze the relationship between renting on business premises and intake of short-term loans and to assess the relationship between business turnover and intake of short-term loans among business agents in Kalerwe Market. It is argued that economic growth in Africa will be enhanced by the expansion of small and medium-sized enterprises (SMEs) but these businesses face financing constraints which tend to hinder their business success. This study findings aimed to establish the effects of short-term loans on SMEs and suggest feasible solutions. About 82 percent of businesses renting space for operations had taken short term loans and 53% of businesses not renting had not taken short term business loans in the market. About 31.6 percent of business owners with access to loans reported no potential for business expansion, 39.5% businesses who took loans reported potential for business expansion, while 29% who had taken short term loans reported their business did not change. About 52.6% of business owner who accessed short term loans were males while 47.4% were females. Businesses renting premises for operation had higher odds (18.4 times) of being users of short-term loans as compared to those not renting. The study revealed that businesses renting business premises were significantly more likely to use short-term loans and that affected business sales and profitability. The study therefore envisaged regulation of rent policies to help protect the small and medium enterprises to grow in the market. In addition, the research recommends proper implementation of private sector engagement strategy to increase the size of the private sector including SMEs in form of favourable taxation policies and infrastructural improvements in Uganda.