Factors considered by commercial banks to assess credit -worthiness of SMEs: a survey of commercial banks in Mombasa county
Kombo, Amina Abubakar
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Businesses have in the recent past been awakened by the spirited campaign by the government and the private sector to be more aggressive in order to create employment and spur economic growth towards achieving vision 2030. The small and medium enterprises have not been spared and have therefore sought for financing from lenders such as financial institutions. Financing is a major ingredient to success of any business. This is so because objectives of the business cannot be met if there are no resources in terms of infrastructure and stock besides other overheads such as human resource and marketing. This research was carried out to determine the factors that these financial institutions consider in assessing the credit worthiness of these SMEs. Specific objectives is to find out to what extent banks use profitability, cash flow, liquidity and capital structure to assess credit worthiness of the SMEs. Literature was reviewed and the aforesaid variables were focused upon to see how the lenders use them to determine credit-worthiness of the business. Findings of this. study will be of use to the banks for policy making. The findings will also assist the investors in evaluating themselves for creditworthiness. Private sector will also get to know where they could supplement the government in boosting entrepreneurship from the findings. The study took a survey research design and was carried out on all the 30 Commercial banks in Mombasa County. Purposive sampling was used to pick a credit officer from each of the banks. A questionnaire was the instrument of data collection. Out of 30 questionnaires distributed, 29 were returned. Data was analyzed using the Microsoft excel and presented using tables and pie-charts; same was imported to Microsoft Word. Majority of the respondents agreed .that profitability, cash flows, liquidity and capital st.ructure composition affect financing of SMEs by financial institutions. The SMEs should thus endeavour to enhance their performance to maintain these factors to ensure their credit-worthiness to lenders.