Abstract

Purpose

The research objective was to establish the effect of traditional formal debt finance on financial performance of manufacturing Small and Medium Enterprises in Nairobi City County, Kenya.

Design/Methodology/Approach

The study used trade-off Theory and adopted a Positivist research philosophy. Explanatory research design was used. The study targeted population was 128 managers. Descriptive, correlational and multiple regression were the techniques used in data analysis. Normality, multicollinearity, homoscedasticity and ANOVA tests were the techniques used in diagnostic tests.

Findings

Findings revealed that traditional debt had a positive and significant impact on the financial performance of manufacturing Small and Medium Enterprises in Nairobi City County.  Traditional debt finance is vital to boosting financial outcomes for Nairobi’s manufacturing Small and Medium Enterprises.

Research Limitations

The study concentrated on manufacturing SMEs in Nairobi City County and as such caution was required before generalizing research findings outside Nairobi City County. The results of the study depended on primary data which was qualitative and quantitative.

Recommendation for Policy

The study generates knowledge on the challenges SMEs experience in accessing equity formal finance due to documentation requirement for NSE. Policy makers may need to consider engaging with manufacturing stakeholders to develop friendly policies to allow more SMEs manufacturing to get registered with NSE and access formal finance.

Recommendation for Practice

The study recommends that financial managers should consider the use of traditional debt formal finance to improve financial performance.

This work is licensed under a Creative Commons Attribution 4.0 License.