Accessibility and Utilization of Bank Finance by Small and Medium Enterprises: A Study of Entrepreneurs in Dakshina Kannada and Udupi Districts

Abstract

This study examines the accessibility, adequacy, and utilization of bank finance among Small and Medium Enterprises (SMEs) in Dakshina Kannada and Udupi districts of Karnataka. SMEs play a significant role in employment generation, industrial development, and economic growth; however, access to timely and adequate institutional finance remains a major challenge. The study analyses various aspects of bank financing, including ownership of lending banks, loan application procedures, documentation, loan disbursement period, pre-disbursal interactions, nature of loans sanctioned, adequacy and cost of finance, and utilization of bank loans by entrepreneurs. Primary data were collected from 343 SME entrepreneurs using a structured questionnaire. The data were analysed using descriptive statistics and Chi-square tests to examine district-wise differences in various dimensions of bank financing. The findings reveal that entrepreneurs continue to experience procedural complexities, delays in loan disbursement, inadequate loan amounts, and high borrowing costs. Working capital emerged as the primary purpose for availing bank finance, followed by diversification, modernization, and business expansion. Significant district-wise differences were observed in the ownership status of lending banks and procedural formalities involved in obtaining loans, whereas most other dimensions showed no statistically significant differences. The study recommends simplifying loan procedures, reducing processing time, improving transparency, and ensuring adequate credit support to enhance the effectiveness of institutional finance for SMEs.