FINANCING SOURCES AND THE FINANCIAL PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES IN RUIRU TOWN, KIAMBU COUNTY, KENYA
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Date
2026-04
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THE CATHOLIC UNIVERSITY OF EASTERN AFRICA
Abstract
Across both developed and developing countries, small and medium-sized enterprises (SMEs) are crucial contributors to economic growth by contributing to employment, innovation, and productivity. Even with this support, many SMEs encounter ongoing financing difficulties that hinder their capacity to compete and expand. Why is this so? Commercial bank loans and trade credit have remained inadequate or unavailable for most businesses in Ruiru Town, Kiambu County, Kenya. This is a clear indication of the necessity to explore other funding avenues. The financial outcomes of SMEs were investigated by investigating the impact of four financing types, which are equity capital, asset-backed lending, debt funding, and personal savings. It was grounded in the Pecking Order Theory and the Trade-Off Theory, with a focus on correlational research. A target of 248, as per Yamane's formula, can be achieved. A structured survey was conducted among 198 owners and managers of SME businesses. They were chosen.? Using the SPSS, data was processed using both descriptive techniques (mean’s, percentages and standard deviations plus variances) and inferential analyses, including normality assessments (Kolmogorova–Smirnov and Shapiro–Wilk tests), correlation and regression modeling. The study's results showed that asset-based financing and debt financing were responsible for the most significant enhancements in cash flow, operational flexibility, and capital accessibility. Equity financing had several strategic benefits, including enhanced governance and greater network reach but was only moderately adopted due to lack of awareness or concerns about potential ownership dilution. Despite their moderate impact on long-term performance, personal savings were the most common source of start-up capital and a way to maintain complete control over the business. SME businesses were able to improve their financial performance through diversified financing sources, with the exception of those that achieved relatively modest returns on equity and assets. The study suggests that SME growth can be boosted by pooling various financing options, but the effectiveness of each depends on business maturity, operational capacity, and market conditions. The study suggests that the most effective outcomes are: heightened awareness of equity financing, less complicated collateral registration for asset-backed credit, increased support for fintech and non-traditional lending platforms, and assistance to SMEs in balancing personal savings with scalable external capital. Additionally, Also, the development of financial familiarity is crucial for entrepreneurs who want to assess their performance accurately through indicators like Return on Assets (ROA), Return On Equity (ROE) and profit margin. By implementing these measures collectively, SME competitiveness can be enhanced and financing can become sustainable.
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Financing sources, financial performance, small and medium enterprises (SMEs), access to finance, capital structure, business performance, Ruiru Town, Kiambu County, Kenya