The Effects of business incubation on access to finance by Small and Medium-Sized Enterprises (SMEs) in Kenya

Abstract

The purpose of this study was to investigate the effects of incubation on access to finance by Smal and Medium-sized Enterprises (SMEs). SMEs contribute significantly to economic growth and innovation. The growth of the sector has been significantly constrained by lack of access to finance. Business incubation is a proven tool that has been used to bridge the information asymmetry between financiers and SMEs. This study investigates the effects of incubation processes on SME access to finance. This study’s research objectives sought to analyze the effect of incubator processes of selection performance (ISP), Monitoring and business assistance Intensity (M&BAI) and resource munificence (RM) on access to finance for SMEs. The study adopted a positivism philosophy and a descriptive – correlational research design. The target population of the study consisted of a sample of incubatees drawn from 30 public and private incubators. Research quality was assessed using diagnostic tests to verify validity and reliability of the study. Primary data was collected from the incubatees using a questionnaire. Descriptive and logistic regression analyses were employed to examine the data. The study found that incubation processes had a positive on access to finance among Kenyan SMEs. Incubator selection performance and business assistance quality and intensity had positive effects. SMEs incubated for 1–3 years had a negative effect on access to finance while industry type had no effect. The study recommends implementing a structured, performance-based selection criteria and improving incubatee engagement through tailored mentorship, strategic planning support, and fundraising coaching. The study also noted the need to improve linkages to external capital providers such as banks, angels and VCs through curated introductions and partnerships. Key words: SME, Incubators, Access to finance, Incubation Process