CAPITAL STRUCTURE AND ITS DETERMINANTS OF EXTERNAL FINANCING OF SMALL BUSINESSES IN MBEYA CITY, TANZANIA

Abstract

Small business owners are the breeding ground for medium and large enterprises in the the emerging and developed world economy. However, it is not clear what theories apply in the capital structure of small business owners and determinants of being financed in Mbeya City. The present study assessed the capital structure for small business owners in Mbeya City and its determinant of external financing. Thus, purposive sampling technique was used to select a total of 80 small business owners and employed both descriptive statistics and quantitative approaches. Findings showed that capital structure of small business owners was dominated by internal followed by external sources as startup of businesses. Moreover, findings showed that all predictor variables interest rate, collateral and audited financial records were statistically significant and directly related with the ability of financial institutions in financing small businesses. Based on these findings, it is therefore concluded that interest rate, collateral and audited financial records are the determinants of the financial institutions in financing small businesses. So, results have impact on how small business owners are creative in financing business. This has an implication to policymakers on how to raise creativeness in decision making to ensure business performance. Consequently, findings provide the motive to those who intends to engage in business on how to mobilize capital for sustainable business. Thus, it is recommended that government should create a favorable environment by reducing tax interest rates to increase retained earnings and enable in accessing external funding.