Constraints Faced By Small And Medium Entreprise In Accessing Bank Finance In Eldoret Town Kenya

ABSTRACT

Small and Medium Enterprises (SMEs) play an important role in the economies of developed and developing countries, through creation of new jobs. Access to bank financial resources seems to be a major constraint to the growth of SMEs in the developing context. This study thus, aimed at finding out the constraints faced by SMEs in particular accessing bank financing. The study adopted the adverse selection theory of credit markets. This study adopted an explanatory and descriptive survey design. The target population for this study was 8175 registered SMEs in Eldoret central business district. A sample of 35 SMEs was sampled with 4 respondents randomly selected to raise a sample of 140 respondents. The response rate was 122 questionnaires. Data were analyzed using descriptive, χ2, t-test for mean differences and logistic regression. In this study, education (p-value = 0.004), number of years of business (p-value = 0.013), stage (2) (p-value = 0.025), turnover (p-value = 0.020) contributed significantly to the prediction while gender (p-value = 0.081), age (p-value = 0.974), business form (p-value = 0.467) and number of employees (p-value = 0.107) did not. From the findings, through assessment of Exp (B), when the number of employees is increased by 1 unit, the odds ratio is 2.262 times as large and therefore businesses are 2 times more times likely to obtain funding. The odds ratio is 3.537 times as large for males and this means that males are approximately 4 times as likely to obtain funding. However, age, education, business form, number of years of operation, stage of business and average turnover were found to be insignificant in obtaining funding. As shown by the study there is a high failure rate for small business mainly due to lack of access to finance to start-up and expand businesses. Rather than overemphasizing costly interventions to support small enterprises, the state should focus on eliminating the barriers created by excessive regulation and the absence of effective markets. Given that the level of access to finance is low, it is therefore imperative that management capability and financial management acumen be regarded as key to easy access for funding by the entrepreneurs themselves, and the parties involved in supporting and promoting them. The study has shown that there is a high failure rate for small business mainly due to lack of access to finance to start-up and expand businesses. It is therefore imperative that management capability and financial management acumen be regarded as key to easy access for funding by the entrepreneurs themselves, and the parties involved in supporting and promoting them. It is also recommended that government and other service providers incorporate additional simplified components to their training packages to cover such areas as bookkeeping and compilation of business plans. Also, more non-financial services, better tailored to the needs of financial intermediaries should be put in place so as to facilitate greater access to debt and equity finance for entrepreneurs, specialized capacity building support should be provided for small scale and start-up equity investments. Also, financial contracts and collateral laws should be revised to facilitate the registration and realization of collateral. An environment should be created to allow a far greater level of competition between banks, as well as between banks and non-bank financial service providers, in the provision of financial services and particularly debt finance to SMEs. Access to information about SMEs should be increased to ensure that all providers and potential providers of finance have a sufficient knowledge to assess the risk of SME applications for finance. Funding institutions should advertise their services so that the entrepreneurs are aware of where to go when they need money to start-up or grow their businesses and there should be an improved regulation of credit bureau in order to enhance their credibility and the integrity of the information being distributed by the credit bureau.