Access to external finance is needed for new SMEs to start and expand operations,
develop new products, invest in new staff or production facilities. Despite the role
played by SMEs in employment creation and poverty alleviation, SMEs in Tanzania
are currently faced with many serious loan repayment difficulties which act as a
barrier to their emergency and growth. Besides, no study has examined the effects of
loans repayment on SMEs business performance within Morogoro municipality. The
general objective of the study was to examine the effects of loan repayment on SMEs
business performance. A cross sectional research design was used in this study. A
total of 100 respondents were involved. Data collected were analysed descriptively
using SPSS®
computer software version 16. The results showed that 90% of
respondents stated that individual or borrower specific socio-economic and
demographic factors, credit period and high interest rates influence SMEs repayment
capacity hence, SMEs fail to repay the loans and at the end become bankrupt.
However, 80% of respondents were of the opinion that SMEs failure includes the
business that has no market potential, business not being financially viable and the
business that does not have business plan. It was found that these issues were absent
among SMEs as some could not know if what they marketed were viable financially,
had market potential and were strategically incorporated in the business plan.
Moreover, 87% of respondents stated that, networking influenced SMEs performance
as through communicating with other SMEs, techniques were sought thus enabling
good exchange of ideas and innovations. On the other hand, 80% of respondents
stated that SMEs lack credit data and collateral or capital that would help in
accessing loans due to the fact that they were not able to mobilize funds and invest in
various income generating activities. This study revealed that out of 100 respondents
only 40 were able to produce credit data and collaterals that would enable them
access funds from financial institutions. This little amount of SMEs suggests for the
need of support of the upcoming SMEs in order to enhance prosperity among
beneficiaries. It is concluded that if SMEs would be provided with customer service
skills or knowledge, they could be in position to deliver services that attract
customers hence attain profitability with ultimate goal of improved loan repayment.