Asian Journal of Economics, Business and Accounting

Background: Small and Medium-sized Enterprises (SMEs) are critical to economic development, contributing significantly to employment, income distribution, and poverty alleviation. Despite their importance, SMEs often face challenges in accessing finance, particularly from commercial banks. This study investigates the effects of commercial bank loans on SME growth in Morogoro Municipality.

Methods: The study adopted a cross-sectional research design, employing a quantitative approach to collect data from a sample of 92 SMEs operating in various sectors, including manufacturing, retail, services, and agriculture. The stratified random sampling technique was applied to ensure sectoral representativeness. Data were collected using structured questionnaires and descriptively analyzed.

Results: The findings revealed that the majority of SMEs utilized commercial bank loans for business expansion (57.61%), upgrading infrastructure (55.43%), and developing new products or services (60.87%). However, a significant portion of SMEs also faced challenges in loan utilization, particularly in hiring more employees (44.57%) and investing in research and development (50.00%). The study demonstrated that effective utilization of loans positively impacts SME growth and financial performance.

Conclusion and Recommendations: Access to commercial bank loans is essential for the growth and sustainability of SMEs in Morogoro Municipality. However, barriers such as insufficient financial literacy and rigid loan terms limit their effective utilization. Policymakers should promote financial literacy programs and encourage banks to design more SME-friendly loan products. Additionally, reducing collateral requirements and offering targeted credit schemes could enhance SMEs’ access to finance, fostering sustainable growth.