Debt Financing and Sustainable SME Growth in Sub-Saharan Africa: A Qualitative Perspective from Uganda

Abstract

This research examines the impact of structured debt financing, including loan size, interest rate, and maturity, on the sustainable growth of small and medium-sized enterprises (SMEs) in Lira City, Uganda. Data were collected using a qualitative interpretative phenomenological analysis (IPA) approach through semi-structured interviews with owners and senior managers of SMEs across various sectors. Thematic analysis was performed utilizing Braun and Clarke’s six-phase method. The findings indicate that although SMEs can access credit, the loan structure frequently hinders business growth because of limited disbursed amounts, elevated interest rates, and short repayment periods. Participants identified difficulties in obtaining debt, including strict collateral demands and complex loan procedures, along with post-disbursement challenges such as undisclosed fees and rigid repayment terms. In light of these constraints, SMEs exhibited adaptive behaviours including structured repayment planning, financial discipline, and cautious borrowing, which indicate informal financial literacy and strategic decision-making. The behaviors observed correspond with the Trade-Off Theory of Capital Structure and the Sustainable Growth Theory, elucidating how SMEs manage financial risks to maintain operations. The research is confined to SMEs in Lira City and may not comprehensively reflect experiences in other areas; subsequent studies could incorporate quantitative methods or expand geographic scope. The study advocates for inclusive and transparent lending practices, including the relaxation of collateral requirements, stabilization of interest rates, clear disclosure of all loan costs, provision of flexible repayment schedules, and investment in financial literacy programs to enhance the resilience and growth of SMEs.