The effect of debt financing on the financial performance of SMEs in Zimbabwe

Globally, SMEs contribute immensely to economic growth and development in both developed and developing countries. This necessitate the need for funding for SMEs for them to contribute meaningfully and sustainably to economic growth and development. Nevertheless, SMEs funding remain a challenge in most countries especially developing ones. Therefore, this study aimed to establish the effect of debt financing (short-term debt, long-term debt, and trade credit) on the financial performance of SMEs in Zimbabwe. Financing SMEs has been a challenge for many SMEs worldwide. Notwithstanding that SMEs contribute immensely to the growth of an economy, SMEs remain underfunded especially in developing economies. Their contributions include poverty reduction, increased job opportunities, competitiveness, and productivity in the industrial sector. This study adopted a positivism philosophy and a cross sectional survey design. Quantitative data were gathered from 210 SMEs using a structured questionnaire with Likert-type responses. The findings show that debt financing (short-term debt, long-term debt, and trade credit) positively influences the financial performance in emerging markets. This study contributes to studies that prove a significant relationship between debt financing and financial performance in sectors other than SMEs. Thus, SMEs are advised to use debt financing to improve their financial performance.