Loan Interest Cost and the Financial Growth of Small and Medium Enterprises in Nyandarua County, Kenya

Credit plays an important role in economic development and it is therefore believed that the expansion of credit programs will have a positive effect on income increase among small businesses of any economy. It helps in the diversification of livelihood, elimination of poverty and increases the skills of entrepreneurs. In Kenya, many small businesses source their credit from the informal sector and therefore their access to formal credit remains low. The focus of this study was to analyze the preference and perception of small scale business owners on the access to credit facilities so that their accessibility can be improved and that their needs for credit can be met adequately. The specific objective of this study was to determinethe effect of loan interest costs on the financial growth of small and medium enterprises in Nyandarua County. The target population for the study was all the SMEs in Nyandarua County in the sectors of manufacturing, trade and service provisions which are 456 in number. The study applied stratified sampling design in coming up with a sample size of 137 respondents for the study which was a probabilistic sample of 30 % among the three strata of manufacturing, trade, and service provision. Questionnaires were used as instruments for the study to collect data from financial managers and owners of these enterprises. Data collected was analyzed through descriptive analysis, content analysis, and regression analysis and emerging results presented in tables. The study found that there is a negative and significant relationship between loan interest costs and financial growth. The study recommends for the financial institutions to charge low-interest rates on their credit facilities so that many small businesses take up loans. Also, the businesses can take up other alternatives of financing that have low costs charged on loans such as SACCOs therefore increasing their ability to access credit.