The Impact of Lending Interest Rate and Access to Credit on SME Growth: A Literature Review

An increase in lending interest rates means a rise in the price of borrowing money. It indicates a rise in the cost of running small and medium enterprises (SMEs) due to servicing of interest and eventually payment of the principal. This causes consumers to cut their expenditures leading to a fall in business sales. This is given that, high lending rates affect business through the influence on both their own direct costs and the ability of the SMEs to borrow and spend. The main objective of the study is to assess the access to credit by SMEs, as well as, how lending interest rate policy affects them. The results of this literature review indicate that the access to credit positively influences growth of SMEs. There is, as well, credit rationing as the lenders determine the amount of credit to allocate and interest to charge based on the probability of default. Finally low levels of credit demand by enterprise in are brought by lack of information about credit