Debt Financing and Growth of Small-Scale Enterprises in Zambia

Abstract

Using a case study of Small and Medium Enterprises in Livingstone, the study investigated the impact of debt financing on the growth and performance of small-medium enterprises in Zambia. Through the use of a structured questionnaires with both open-ended and closed-ended questions, 100 SMEs operating in the business categories of guest house/lodge, restaurant, fabric traders, bar/night club, and curator traders were counted. The results showed that while the majority of SMEs in Livingstone used debt financing, some were unable to do so because of issues ranging from high interest rates, the absence of collateral requirements, payback terms and periods, to a lack of knowledge about financial management. The results also revealed that crowd funding and leasing were the two most often used alternative financing options by SMEs, behind venture capital. These results suggest that Zambia's financial platforms for SMEs are not sufficiently diverse. As a mix of commercial banks and other financing choices will go a long way in assisting the development of the SMEs sector, the study recommends that the growth of non-bank financial organizations offering alternative financing be promoted and supported.