Bank Loans and Financial Performance in Selected Small and Medium Enterprises in Makindye Division, Kampala-Uganda

ABSTRACT The study intended to establish the relationship between bank loans and financial performance of selected SMEs in Makindye Division. Using descriptive correlation, expost-factor and cross sectional designs. The researcher made questionnaires which helped to collect data on; 1) the profile of respondents; 2) extent of bank loans, 3) level of financial performance of SMEs and 4) the significant relationship between bank loans and financial performance of SMEs. Data was analyzed using frequencies, percentages, means, Pearson’s Linear Correlation coefficient and regression analysis. The results revealed that more than 55.2% of SMEs in Makindye are owned by male, most of them are secondary drop out (46.1%), majority are below 30 years (47.4%), over 93.5% are sole proprietorship businesses and more than 27.9% have spent less than five years and above in business. The extent of bank loans was moderate (overall mean = 1.83) and access to bank loans was very high (overall mean = 3.53), short term loans was high (overall mean= 2.82) and long term loan access was moderate (overall mean = 1.89). The level of financial performance of SMEs was high in terms of profitability (mean =2.94), high on liquidity (mean = 2.53), sales growth was high (mean = 3.13), solvency was high (2.76). The extent of bank loans in terms of access to bank loans, short term loans and long term loan was found significantly correlated with all aspects of financial performance of SMEs (all sigs. > 0.05). And that the extent of bank loans altogether is significantly correlated with the level of financial performance of SMEs in general (r=0.939, sig. =0.032). This leads to a conclusion that bank loan is important for entrepreneurs and these results are significant at 0.05 the level of significance. it is recommended that there is need to; i) promote female entrepreneurs, ii) central bank should enforce commercial banks to set favourable interest rate, iii) banks should set favourable lending terms and conditions on both short and long term loans, iv) banks should encourage long term loans to be given to SMEs in Makindye, and v) to conduct training programs on access of loans. Suggestions for further research; i) a similar study in other regions of Uganda, that is central Eastern, Western and Northern Regions, ii) bank loan procedures among Small and Medium Enterprises, iii) terms and conditions among SMEs and others.