Lending Terms, Credit Access and Financial Performance of Small Enterprises in Arua City.
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Date
2025-11-19
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Makerere University Business School
Abstract
This study examined the relationship between lending terms, credit access, and the financial performance of Small Enterprises (SEs) in Arua City, Uganda. The specific objectives were to: (i) examine the relationship between lending terms and financial performance; (ii) examine the relationship between credit access and financial performance; and (iii) examine the combined effect of lending terms and credit access on financial performance. The study was anchored on the Pecking Order Theory and adopted a cross-sectional survey research design, collecting data from 200 respondents, including SE owners, managers, and loan officers, using questionnaires. Quantitative data were analyzed using descriptive statistics, Pearson correlation, and multiple regression analysis. The findings revealed that credit access, particularly financial literacy (r = .637, p < .01) and membership in business associations (r = .729, p < .01), had a strong positive and significant relationship with financial performance. Lending terms, specifically the loan period, showed a moderate positive correlation (r = .530, p < .01), while interest rates exhibited a negative correlation (r = -.275, p < .01). Regression results indicated that credit access (B = 0.920, p < .001) was the dominant predictor of financial performance, whereas lending terms alone were not statistically significant. The study concludes that while favorable lending terms are beneficial, improved credit access—driven by financial literacy and institutional networks—is the primary driver of SE financial performance. Recommendations include the need for SEs to invest in financial literacy and association membership, and for policymakers to design credit programs that prioritize access, flexibility, and borrower education to enhance the sustainability of SEs in Arua City.
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This is a master's thesis.
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Bicanduwun, A. A. (2025) Lending Terms, Credit Access and Financial Performance of Small Enterprises in Arua City. Makerere University Business School.