Business Financing for Small and Medium Enterprises in Uganda: Alternatives and Challenges

This study aimed to identify the current business financing alternatives for small and medium enterprises and the challenges they face in accessing financial resources for their businesses in Uganda. The study employed a survey-based approach to collect data from 100 participants selected from the small and medium enterprises in the five divisions of Kampala Capital City Authority using a simple random sampling design. The data was collected using a self-administered research instrument with an overall Cronbach's reliability coefficient of 0.784. The data was analysed using descriptive statistics. The study results revealed that the main business financing alternative for SMEs in Kampala Capital City Authority is microfinance institutions; the other business financing alternatives include savings and credit cooperatives, rural and community banks, commercial banks, and savings and loans. Furthermore, the study results showed that the significant challenges small and medium enterprises face in accessing financing for their businesses are a lack of sufficient collateral, inadequate or poor credit history, and failure to complete the loan application process. It is recommended that to improve access to financing for SMEs in Kampala Capital City Authority, i) Financial institutions should lower their interest rates, ii) Small amounts of loans should be given without collateral, and iii) Improve traditional lending through leasing, iv) SMEs should invest in capital markets as an alternative source of funds and, iv) SMEs should put more emphasis on development strategies, such as social capital networks as a mechanism for improving their financing opportunities.