The Effect of Multiple Borrowing on Financial Performance of Small and Medium Enterprises in Machakos Town

Abstract

Small and medium firms frequently choose to finance their business investments by taking out several loans from different banks. In most countries, firms tend to borrow from several banks and most of the small and medium-sized firms patronize several lenders. However, it may have a disastrous effect if borrowers keep accumulating debt with little or no ability to repay. This study seeks to examine the effect of multiple borrowing on financial performance of small and medium enterprises in Machakos Town. The study adopted a descriptive research design and targeted a population of 2155 registered small and medium enterprises in Machakos Town. A sample of 95 small and medium enterprises was selected using the simple random sampling technique. This study used secondary data, which was collected using a data collection sheet. The data covered a period of 2 years from 2015 to 2016. The collected data was analyzed using descriptive statistics, correlation and regression analysis and was used to establish the relationship between the study variables. The study revealed that the relationship between multiple borrowing and return on assets of SMEs in Machakos Town is negative and insignificant while the relationship between management efficiency and return on assets of SMEs in Machakos Town is negative and significant respectively. The findings indicate that the relationship between size and return on the assets is negative and significant while the relationship between growth opportunity and return on assets of SMEs in Machakos Town is positive and significant. The results further indicate that the relationship between liquidity and return on assets of SMEs in Machakos Town is negative and insignificant. The study concluded that multiple borrowing and liquidity do not significantly affect SMEs financial performance but management efficiency, size and growth significantly affect SMEs financial performance. The study recommended that SMEs should avoid over borrowing since it may affect the firms and recommended that the managers and owners of SMEs should effectively manage their enterprises