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Factors Influencing Choice of Source of Business Finance By Small and Medium Enterprises: A Survey of Thika Municipality

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  • Douglas M. Rosana
  • Willy Muturi

Abstract

Finance is regarded as one of the crucial prerequisites for economic development. Hence, access to credit as far as producers are concerned is an important factor since it provides external finance. Majority of small and micro enterprise owners depend on informal sources of finance. This is despite the fact that this sector is said to be charging exploitative interest rates. The source of business finance differs from one SME to the other depending on various factors. This study examined the factors that influence the choice of a Source of Business Finance by Small and Micro-enterprises. The study’s specific objectives included determining how interest rate requirement influence a choice of a source of business finance, to determine how collateral requirement influence a choice of business finance source, to examine how loan repayment period influence the choice of a source of business finance by small and micro enterprises and finally to determine how distance from the borrowing source influence the choice of borrowing source by small and micro enterprises. Results obtained had shown that interest rates, collateral, loan repayment period and distance from borrowing sources influenced the choice of the source of business finance. For the interest rates, majority of the respondents preferred sourcing their business finance from a source that required the least interest rates to make their repayment affordable. Concerning collateral, the majority of the respondents could source their business finance from sources that allowed them collateral that they were able to meet. The major findings also found that the longer the loan repayment period, the better for sourcing business finance and the shorter the distance to the borrowing source the higher the degree of preference.

Suggested Citation

  • Douglas M. Rosana & Willy Muturi, 2014. "Factors Influencing Choice of Source of Business Finance By Small and Medium Enterprises: A Survey of Thika Municipality," International Journal of Financial Economics, Research Academy of Social Sciences, vol. 2(4), pages 191-207.
    • Handle: RePEc:rss:jnljfe:v2i4p4
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