The effect of choice of financial facilities on financial performance of top 100 smes
SMEs‟ financial performance has recently received a growing attention in both economic and financial literature, much of which in the developed economies. Much of the existing literature has however largely focused on the macroeconomic and microeconomic factors that influence firm financing, and limited attention given to the effects of the choice of the financing facilities on performances thereof. This coupled with the limited literature on the same, locally, present a significant gap in literature. It is upon the inadequacy of the current literature which made this study to be borne to fill the identified knowledge by analyzing the effect of choice of financial facilities by SMEs in Nairobi on financial performance. Specifically, the study focused the effect of interest charged on loan, loan size, collateral requirement and product range on financial performance of SMEs in Nairobi. This study was based on an exploratory design and targeted all top 100 SMEs in Kenya for the year 2013, acquired from the ranking and published list by KPMG and Nation Media Group. The sample size of this study was 30 SMEs .A questionnaire was used as main instrument for data collection from premises of the participant SMEs. In addition, correlation and multiple regressions were employed to determine the relationship between and among the studied variables. Statistical packages for social sciences version 20.0 was used for data analysis. From the findings of the study, it was concluded that external borrowings are considered to be the cheapest source of financing because of the tax benefits; SMEs‟ access to external sources of funding depends largely on the development of financial markets, and bank loans and overdrafts are the most widespread debt financing methods for SMEs hence it was recommended that there should be an appropriate capital structure that generates the maximum profit for the SMEs, as too less equity financing increases the control of the owners to a large extent, banks should improve transparency on their internal ratings, SMEs should strive to better understand banks‟ loan requirements, deliver clear, complete and timely financial and performance data, and improve rating-relevant factors such as cash flow, equity, accounting, controlling, management, the business strategy, collateral and guarantees and public policy should promote a code of conduct for minimum ratings disclosure, foster venture capital, and improve tax treatment of retained earnings.