Effect of Sources of Financing on Financial Performance of Small and Medium Enterprises in Northeast Nigeria

Alhassan Ismail

doi:10.65453/ijar.v9i2.1249

Authors

Alhassan Ismail Department of Accounting, Iconic Open University, Sokoto, Nigeria.

DOI:

https://doi.org/10.65453/ijar.v9i2.1249

Keywords:

Financial performance, Leasing, Retained Earnings, Small and medium enterprises

Abstract

This study examines the impact of various sources of financing on the financial performance of Small and Medium Enterprises (SMEs) in Northeast Nigeria, Nigeria. The study specifically aims to assess how commercial bank loans, retained earnings, trade credit, and leasing affect the financial performance of SMEs in the state. The research is limited to data from 2015-2023, and a descriptive survey research design was employed. Primary data were gathered through questionnaires, and the analysis was conducted using multiple regression analysis. The target population consists of small, medium, and micro enterprises registered in Northeast Nigeria. A sample of 50 SMEs were selected from each of the six states in the Northeast Nigeria making a total of 300. Out of the 300 questionnaires distributed, 265 were retrieved and used for the study The findings revealed that both commercial bank loans and trade credit had a significant positive impact on the financial performance of SMEs, while leasing had a significant negative effect. Retained earnings, however, were found to have no significant effect on the financial performance of SMEs in Northeast Nigeria. The study concludes that commercial bank loans, trade credit, and leasing are key factors influencing the financial performance of SMEs in the region. Based on these findings, the study recommends that SMEs in Nigeria should recognize the importance of financing sources as key determinants of their financial performance. It also suggests that SMEs should consider forming larger groups to access bigger commercial loans from banks.

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