Influence of Collateral Security on Performance of SMEs in Turbo Sub County, Kenya

Abstract

Access to credit is a prerequisite for growth of any firm within the economy. It improves firms’ performance, facilitate market entry, growth of companies and promotes innovation and entrepreneurial activity. Small and medium enterprises play an important role of economic growth and on a macro level bring about employment within the economy. SMEs have been unable to access credit to lubricate their businesses due to their limited track record, limited acceptable collateral security, and inadequate financial statements, business plans among others. This has hence attracted the attention of scholars and policy makers. However, there has been disagreement among scholars on the relationship between access to credit and performance of these firms. The purpose of this study was therefore to access the influence of collateral security on performance of SMEs in Turbo s sub county, Kenya anchoring on the credit access theory. The study used a sample of 340 from a population of 2,901 entrepreneurs using both descriptive and correlational research design. From the regression results, the study concluded that collateral security had a positive and significant influence on access to credit hence performance of SMEs. Firms with collateral security accessed loans easily as opposed to those with none. The research hopes that the findings of this study will contribute significantly to the existing literature on access to credit and performance of SMEs.

Keywords: Credit, SMEs, Collateral security, Kenya

DOI: 10.7176/EJBM/11-18-03

Publication date:June 30^th 2019