The impact of Debt Financing on Performance of Small and Medium Enterprises in Ghana

Abstract

Small and Medium Enterprises (SMEs) are an essential part in the growth of the economy and industry as a whole. But in the long run, capital is needed to boost their performance hence the need to finance their operations primarily through debt. The scare research on debt financing of SMEs leads to the purpose of this study to analyze the impact of debt financing on SMEs performance in Ghana. The SMEs sample used for the analysis was taken from Ghana Stock Exchange (GSE) database, which has forty- two (42) companies listed. It contains a comprehensive array of financial statements and balance sheets for companies active in Ghana. For the purpose of the study, 8 SMEs were selected based on their stated capital of not less than GHC 300,000. A five-year time frame financial account reports from 2015 -2019 consecutive year period were used for this study. Also, the study hypothesis was tested using multiple regression analysis. From the results of the study, debt-financed through both short and long term have a detrimental impact on SMEs' financial performance. With the intention to destitute credit and loan control policies, the study recommends that SMEs utilize their debt significantly. The diversification of their revenue streams, is essential to amateur down payment modes for trade credits and practice proper financial bookkeeping records. It is also suggested that transparency in payment schedules and necessity of training their employees on a regular basis. The employment of knowledgeable interior and exterior auditors to advance interior control systems and keeping of records is also advantageous for SMEs in accessing loans.