Relationship Between Loan Amount Accessed And Growth Of Small And Medium Size Enterprises In Nairobi City County

Abstract

This investigation aimed at establishing the link between the loan amount accessed and the growth of SME's in Nairobi County. The investigation utilized descriptive research design. The target population 30253 SME’s in Nairobi, Kenya which was sampled to 395. The type of data needed for this study was primary data, which was sourced using structured questionnaire. Data collected was analyzed with descriptive statistics and inferential statistics. Mean and standard deviation was employed to present the analysis output. Regression analysis was utilized to ascertain the bearing of level of credit on growth of SME’s in Nairobi. The outcomes point out that r square was 0.3607 implying that 36.07% of the variation in the growth of SMEs was accounted for by loan amount, collateral, interest rate and education level. The analytical model was substantial as the P value was 0.00 which was less than the (0.05). This infers that the model fit to predict growth of SMEs based on loan amount, collateral, interest rate and education level is statistically substantial. From the regression model obtained the constant value was established at 5.341. This suggests that the value of growth of SMEs when loan amount, collateral, interest rate and education level are held constant is 5.341. Further the model shows that a unit surge in loan amounts would bring about promotion of SMEs growth by a factor of 0.0504 units. A unit in the collateral requested would bring about a decrease in the growth of SMEs by a factor of -0.417. A unit surge in the interest rate would bring about a decrease in the growth of SMEs by -0.887 units while a unit surge in education level would promote the growth of SMEs by 0.0644. The investigation concluded that most of the SMEs had no credit facilities extended to them with also their highest loan qualification being a small amount. This was because for the SMEs to borrow the needed collateral was lofty for them to attain. This deterred borrowing with some SMEs resulting to financing their businesses from sale of assets and savings. The investigation also concluded that lending institutions did charge a high interest rate. This was a major deterrence for SMEs to take out any form of loans from these institutions due to the huge servicing cost of the loan. The investigation also concluded that education level for the SMEs owners and staff was crucial. This is because for proper borrowing to take place their must be easy flow of information between the lender and borrower. Thus, it was determined SMEs should recruit staff that were able to understand and access information on loan. The investigation suggests that financial lending establishments like banks out to reassess their collateral requirements. This should be done to help make credit provision more accessible to the SMEs. In turn this would eventually stimulate their growth. The investigation similarly proposes that the government to ascertain strategies that will allow MF lending to SMEs. These strategies ought to specifically target policies on interest rate charged by financial institutions. Setting up fair rates would encourage SMEs to borrow and expand their businesses. The study further recommended that SMEs should hire staff with a substantial amount of education level. Equipped with such staff members SMEs will be able to gather the correct information on credit advanced by the various lending institutions. Further, these staff will be able to advice on best financial administration practices.