A survey of sources of finance for building construction firms in Kenya
Financing decisions is an important managerial task. Business managers must consider sources of financing available and their relative costs as well the financial risk. Tangible assets, such as fixed assets can support a higher debt level as compared to intangible assets, such as growth opportunities. The tax trade-off models predict that profitable companies will employ more debt since they are more likely to have a higher tax burden and low bankruptcy risk. This study therefore sought to find out the sources of finance for building construction firms in Kenya. The objective of the study was to establish the various ways in which building construction firms finance their operations. The study used both quantitative and qualitative analysis for its research methodology. The total population of interest comprised of 1799 firms according to the Ministry of Roads and Public Works, 2006. A sample size of 34 firms was included in the study. Primary data was collected by questionnaire method. The result of the study showed that that for the construction firms involved in the survey, most of them reported that they faced hurdles in raising finance and these hurdles emanated from the high interest and the smallness in size of the firm. This is the reason why most of them did not have adequate equipment. The firms therefore did have intention of increasing their capital and this was mainly through bank loans. The firms involved in the study published their accounts annually while a few did not publish their accounts at all. Fewer still engaged external auditors to verify their books of accounts. Earnings were considered a great risk while funding was ranked a moderate risk by most of the participants in the survey. For most firms involved in the study they considered equity to be least expensive and bank loans as being the most expensive. The companies involved in the survey also listed the main challenges they faced including competition and funding.