THE IMPACT OF SOURCES OF FINANCE ON THE GROWTH OF SMALL AND MEDIUM-SCALE ENTERPRISES IN GHANA

Abstract

ABSTRACT A number of studies have emphasized the growing importance of credit to the growth and productivity of every business entity especially Small and Medium-Sized Enterprises (SMEs). Over the years, the contributions of SMEs towards bridging the income gap, reducing unemployment, and contributing to economic growth has been enormous. Despite the strong growth prospects for SMEs, accessibility to the right sources of finance continue to be pose as a major challenge to participants in this space. This study consequently seeks to explore the sources of finance for SMEs, the impact of these sources of finance on their growth, and the challenges confronting SME finance in Ghana. This was achieved by obtaining primary data from 210 SMEs operating in Accra Metropolitan area. The data was solicited by means of a semi-structure questionnaire which were quantitatively analyzed by means of frequencies and regression technique. It was found that some common sources of finance for SMEs includes bank loans, bank overdraft, trade credit, microcredit, and funds from family & friends. The study also discovered that these sources of funds had a positive impact on growth of SMEs except microcredit which was uncovered to have a negative impact on growth of SMEs. The study also established that high interest rate, high transaction cost, unfavourable repayment terms, and collateral were some barriers to sources of finance for SMEs. It is further recommended that information on available sources of finance for SMEs be made public whilst also promoting the establishment of venture capitalists, business angels, and private equities.