Job Omagwa,Bitta, Fredrick Okoth2023-01-302023-01-302022http://ir-library.ku.ac.ke/handle/123456789/24548A Research Project Submitted in Partial Fulfilment of the Requirements for the Award of a Degree in Master in Business Administration (Finance), of School of Business, Economics and Tourism, Kenyatta University, November 2022Despite their critical role in the Kenyan economy, small and medium enterprises continue to encounter numerous obstacles and struggle to achieve significant expansion. Small and medium enterprises financial performance has continued to decline in Machakos County over the past few years with more SMEs closing their doors due to poor financial performance. According to a 2016 study conducted by Kenya's National Bureau of Statistics, majority of SMEs in Kenya failed to survive longer than three years. Previous literature reviewed found that inability to obtain financing was a key cause of SMEs financial instability. However, there was no empirical evidence that credit affordability was associated with financial performance of SMEs, particularly in Machakos County, Kenya. The relationship between credit affordability and financial performance of SMEs remained an empirical issue that required further investigation. This formed the research gap. This research project was carried out with the aim of investigating the relationship between credit affordability and financial performance of small and medium enterprises (SMEs) in Machakos County, Kenya. The specific objectives sought to examine the relationship between loan collateral, cost of credit, borrower’s credit history, and loan repayment on the financial performance of SME ventures in Machakos County. Financial performance was measured by net profit margin. Four theories anchored the study with the aim of grounding it based on the scholarly work. Loanable funds, credit scorecards, pecking order, and tradeoff theories were all employed in the research. Purposive sampling was used to select one respondent from each of the firms chosen, while random sampling was employed to select a sample of 100 SMEs. Questionnaires were used for data collection and Statistical Packages for Social Sciences (SPSS) version 28 employed to test data. Data was sorted using descriptive analysis including standard deviation, multiple regression analysis, mean and correlation coefficient. The study found a significant relationship between credit affordability and financial performance of SMEs in Machakos County, Kenya. The research found that there was a significant relationship between cost of credit and financial performance; borrowers’ credit history had a significant relationship with financial performance and that loan repayment had a significant relationship with financial performance. The research findings however established that there was no significant relationship between loan collateral and financial performance. This was attributed to the availability of online unsecured loans for SMEs as well as the use of loan guarantors instead of collateral. The study further found that there was a strong positive relationship between credit affordability and financial performance variables including loan collateral, borrowers credit history, cost of credit and loan repayment. The research recommended that lending institutions needed to proactively review their credit policies to in line with the credit affordability variables to ensure loans were accessible and tailored to SMEs needs. There was need for sensitization of SMEs owners to better understand credit affordability variables to foster SMEs financial growth and stability.enCredit AffordabilityFinancial PerformanceSmall and Medium EnterprisesMachakos CountyKenyaThesis