Cost of debt and financial performance of small and medium enterprises (SMES) in Lira city, Uganda
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Date
2025-11-05
Authors
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Publisher
Muni University
Abstract
This study investigates the relationship between the cost of debt and the financial performance of Small and Medium Enterprises (SMEs) in Lira City, Uganda. The purpose of this study is to investigate the impact of interest expenses, loan maturity periods, and debt servicing capacity on the profitability, liquidity, and overall financial sustainability of SMEs. Despite the critical role of debt financing in SME growth, the rising cost of borrowing and limited access to affordable credit continue to constrain performance and survival, particularly in developing economies like Uganda. A descriptive and correlational research design was adopted, integrating both quantitative and qualitative approaches. The study targeted a sample of 120 SMEs registered with the Uganda Registration Services Bureau (URSB) in Lira City. Data were collected through structured questionnaires and key informant interviews, and analyzed using descriptive statistics, Pearson correlation, and multiple regression analysis aided by SPSS version 26. The analysis tested the statistical significance of the cost of debt variables on financial performance indicators such as return on assets (ROA), return on equity (ROE), and net profit margin. Findings revealed a significant negative relationship between high cost of debt and SME financial performance, indicating that elevated interest rates and short repayment periods erode profitability and capital efficiency. However, prudent debt management and strategic utilization of borrowed funds were found to moderate this relationship positively. The study was limited by its cross-sectional design, which may not capture long-term financial dynamics, and reliance on self-reported data, which may introduce response bias. Nevertheless, the research contributes to empirical literature by offering context-specific insights into how debt pricing structures affect SME financial health in Uganda, guiding policymakers and financial institutions toward more sustainable lending frameworks.
Description
A thesis submitted to the department of business administration and management, faculty of management science in fulfillment of the requirements leading to the award of a master’s degree in business administration (accounting & finance) of Muni University
Keywords
Cost of debt, Financial performance, Small and medium enterprises (SMES), Lira city, Uganda
Citation
Odyek, C. (2025). Cost of debt and financial performance of small and medium enterprises (SMES) in Lira city, Uganda (Unpublished graduate dissertation). Muni university, Arua, Uganda