African Journal of Estate and Property Management

African Journal of Estate and Property Management ISSN 9671-8498 Vol. 3 (1), pp. 001-008, January, 2016. © International Scholars Journals

Full Length Research Paper

An investigation into the impact of the usage of debt on the solvency of SMEs in the Buffalo City Municipality, South Africa

Fatoki Olawale¹*, Mornay Roberts-Lombard² and George Herbst¹

¹Department of Business Management, University of Fort Hare, South Africa.

²Department of Marketing Management, University of Johannesburg, South Africa.

Accepted 21 July, 2015

Abstract

This research investigated the impact of the usage of debt on the solvency of SMEs in the manufacturing sector in the Buffalo city municipality. To achieve this objective, the research hypothesized that SMEs have a difficulty accessing debt finance from financial institutions and also that the usage of debt has a negative impact on the solvency of SMEs. This study is important because SMEs, despite their contributions to the South African economy, have not been given due attention as research on corporate finance has been biased towards large firms. The results indicated that SMEs have a difficulty accessing debt finance and that SMEs that use debt are not insolvent. Lastly, the study recommended that small manufacturing firms, commercial banks and the South African government take certain measures. These measures are expected to improve the accessibility to debt and reduce the cost of debt to SMEs.