Does debt really matter on the profitability of small firms? A perspective on small manufacturing firms in Bulawayo, Zimbabwe

Abstract

Small firms are the engines for economic development of several developed countries such as the US and Japan. Developing countries such as Zimbabwe have also identified the potential of small firms to turn economies with negative growth into vibrant ones. For this reason, several governments in developing countries offer funding to small firms either directly or by guaranteeing the payment of such loans as lack of funding is cited as one of the major challenges faced by small businesses. Due to limited resources by governments, not all small firms receive funding from the government, therefore, the other option would be to go for bank loans. The aim of this paper was to investigate the impact of debt on the profitability of small manufacturing firms in Zimbabwe. The results indicated that the use of debt has a negative impact on the profitability of small manufacturing firms. The study recommended the creation of tax incentives and more equity funding for small manufacturing firms   Key words: Debt, profitability, small manufacturing firms.