| Abstrakt: |
Debt financing refers to when a firm raises funds for working capital or capital expenditure by issuing bills, bonds or notes to institutional investors or individuals. In return for the loan, the individual or organization becomes a creditor and gives a promise to repay the principal (value of loan) and an interest on the debt at a given time. Small and medium enterprises (SMEs) can get debt financing from a number of sources such as insurance companies, banks, commercial finance companies, friends, relatives trade credit, leasing companies, credit unions and factor companies, microfinance institutions, commercial banks and other small enterprises. The central bank established a policy that forces banks to reform their loan portfolios to allocate at least 30% of their loan book balance to SMEs. The desktop research study was conducted to confirm the effect of debt finance on growth of small to medium enterprises (SMEs). The major issue that prompted the researchers to conduct this study was limited access to debt funding of projects in SMEs, resulting in limited growth of the sector. Data were gathered from financial statements, journal articles, internet and textbooks. The key findings of the study show that short term debt funding was significantly and statistically negatively impacting on the growth of the firm whereas long term debt funding has positive relationship. This paper recommended a reduction in debt financing and more reliance on internal funds because they are cheaper, easy to maintain, and do not result in external contractual obligations. [ABSTRACT FROM AUTHOR] |
