3.

4 Research Quality

3.4.1 Reliability Test

According to Golafshani (2003), reliability certifies that the operation of an instrument, such as a
data gathering instrument, can be repeated with identical outcomes. The study used the Cronbach
Alpha reliability coefficient calculated with the SPSS application for analysis to confirm the data
gathering instrument's dependability.

Cronbach's Alpha Standardized Cronbach's Number of Items

Alpha
0.775 0.79 6

For the six questionnaire items, the Cronbach ’s alpha value was 0.79, indicating acceptable
reliability. In social science research, a Cronbach's alpha internal consistency coefficient of 0.7
or above is considered adequate.

Pre-testing of the data collection instrument was also done with a select sample of SMEs
workers, ensuring that the data collection instruments collected accurate information that the
researcher had envisioned.

3.5 DATA ANALYSIS

3.5.1 Correlation analysis

Correlation analysis was used to determine the connections between the study's variables of
interest. For this, we used the Pearson correlation. Its goal was to establish the magnitude and the
direction of the links between financing alternatives and SMEs' financial performance.

Financial performance
Formal financing Pearson Correlation coefficient 0.201
Sig. 0.03
N 57
Informal Financing Pearson Correlation coefficient 0.676
Sig. 0.003
N 57
 Personal Financing Pearson Correlation coefficient 0.771
Sig. 0.011
N 57
Government Financing Pearson Correlation coefficient 0.485
Sig. 0.007
N 57

The findings reveal a positive tie between SMEs' financial performance and formal financing.
The correlation is considered average because the Pearson Correlation Coefficient of 0.201 is
less than 0.5, beyond which the link would be reflected as strong. Because the p value (0.03) was
less than 0.05, the connection was significant. The findings back up prior research by Otuya,
Omoka, Ayako, and Kihimbo (2012) and Montoriol Garriga and Garcia-Appendini (2013),
which suggested that formal finance could help enterprises enhance their overall economic
performance.

The results of the Pearson Correlation analysis likewise show a very strong and significant
association between SMEs' financial success and their informal financing (p 0.01). The Pearson
correlation coefficient of 0.676 is considerably close to 0.7, indicating that the association is
reasonably strong. The findings are consistent with prior research by Njeru and Mungiru (2015)
and Agbo and Ugwuanyi (2012), which found that informal finance improves performance.

The findings reveal a substantial, favorable, and statistically significant link between SMEs'
financial performance and personal finance (p 0.05). The Pearson Correlation Coefficient of
0.771 is actually greater than 0.7, indicating that the link is strong. The findings back up prior
research by Vuvor and Ackah (2011), which found that individual funding improves economic
outcomes.

The findings reveal a significant, positive, and statistically significant link between financial
performance and government financing of SMEs in rural and semi-urban areas. The Pearson
Correlation Coefficient of 0.507 is considered strong. Because the significance of 0.012 is
beneath the 5% level of significance, the link is considerably significant. The findings support
those of Makubo (2015), Ventura and Zecchini (2009), and Kamau and Irungu (2015), who
found that government investment improves efficiency.
 Use of alternative source of Income

According to the results, trade credit is the most commonly used alternative source of finance by
small businesses in Rural Areas is trade credit. It is then followed by retained earnings, family
and friends, leasing, and venture capital. Trade credit is the most common since it is simple and
easy to obtain, especially for small and medium-sized businesses.

Alternative Credit

Trade Credit Retained Earnings Family and friends Leasing Venture Capital

Effect of Alternative Source of Finance on the Cost of Finance

Only 14.4 percent of respondents said alternate sources of credit have a negative influence on
finance costs, according to the study. The remaining 85.6 percent said that using other sources of
finance helped their company's financial performance.

Factors Hindering Access to Alternative Source of Finance

According to the study, accessing interest rates is hampered by a high interest rate of 39%. Lack
of collateral, guarantor, and audited financial statement account for 32 percent, 21 percent, and
8% of all cases, respectively.

High Interest Rate Lack of Collateral

Lack of Guarantor Lack of Audited Financial Statements

3.5.2 Descriptive Statistics

The mean, standard deviation, maximum and minimum values of the various variables in the
study are presented using descriptive statistics. The mean return on assets was 3.67, with a
standard deviation of 0.35 and minimum and highest values of -0.37 and 4.24, respectively, for
57 observations. Although some companies were running at a loss, as indicated by the negative
minimum observed value of return on assets, the positive return on assets suggests that the
enterprises were on average profitable. The total assets of the companies studied averaged KES
20,124,563 with a standard deviation of KES. 197,847. For the time period under consideration,
the asset's maximum value was KES. 67,893,277, while its minimum value was $0.

The cost of credit for the businesses studied was KES. 91,567 on average, with a standard
deviation of KES. 42,124. For the period under consideration, the greatest cost of credit was
KES 879,855 while the smallest value was KES 13,679. The cost of invoice discounting for the
companies studied was KES 54,341 on average, with a standard deviation of KES 13,667. For
the period under consideration, the greatest cost of invoice discounting was KES 639,117, while
the minimum amount was KES 15,386. The cost of lease finance for the companies studied was
KES 127,534 on average, with a standard deviation of KES 11,771. For the time covered, the
maximum cost of lease finance was KES 1,134,217, while the least cost was KES 27,485.

Variable N Max Min Mean Standard

Deviation
ROA 57 4.24 0.37 3.67 0.35
Trade Credit Cost 57 879,855 13,679 91,567 42,124
Invoice Discounting 57 639,117 15,386 54,341 13,667
Cost
Lease Finance Cost 57 1,134,217 27,485 127,534 11,771
Total Assets 57 67,893,277 0 197,847

3.5.3 Regression Analysis

After questionnaires were submitted, they were reviewed for completeness and consistency of
information. Excel and Google forms were used to capture the data.

The regression model we used is as shown below.

 ROA= α + βX1+ βX2 + βX3 + βX4 + Ɛ t

Where:

 ROA = Financial performance as measured by return on assets which is calculated

by dividing net profit before tax and interest by total assets

 α = Regression constant
 β = Beta coefficients
 X1 = cost of trade credit as measured by amount of discount foregone
 X2 = cost of invoice discounting as measured by interest paid
 X3= cost of lease finance as measured by amount of lease paid less tax deduction
 X4 = other factors affecting financial performance
 Ɛ t = error term

The statistical significance of the linear model and coefficient terms was determined using a
t-test with a 99.9% confidence level. The F-test was employed to see if the regression was
 statistically significant at a 93% confidence level. The variances were tested using analysis of
variance and R squared.

The result shows ROA = 7.581 + 2.2X1 + 2.4X2 + 1.8X3 + 0.6X4

T-test, F-test, standard error of estimate, and R squared test were used to determine significance.

The T-test revealed a statistically significant connection of 8.46 at a 99.9% confidence level.

The standard error of estimate, which is used to verify the dependability of a regression equation,
indicated non-significance of 1.74 at a 95% confidence level.

The F-test, which measures variation, showed a result of 3.114 at a confidence level of 93%.

The R squared, also known as the coefficient of determination, which is used to determine the
strength of a linear relationship, was 0.580.

Interpretation

The average return on assets was 3.67, with a standard deviation of 0.35 and minimum and
maximum values of -0.37 and 4.24, respectively, for the fifty-seven observations. The positive
return on assets suggests that the companies were on average profitable although some
companies companies were running at a loss, as evidenced by the negative minimum observed
value of return on assets.

ROA = 7.581 + 2.2X1 + 2.4X2 + 1.8X3 + 0.6X4 is the regression equation. The correlation
between alternate sources of finance and ROA is 0.762, while the R squared, also known as the
coefficient of determination, which is used to determine the strength of a linear relationship, was
0.580. This means that the source of finance is responsible for 58 percent of ROA. The factors
have a very strong positive relationship. This is in line with the findings of Adenkule (2012) and
Musyoka (2011).

3.6 Ethical Considerations

Ethics is a perspective, procedure, or a method for determining how you can act and for
examining complicated issues and problems (Crandall and Diener, 1978). This research ensured
that ethical guidelines are adhered to during the data collection.
We shall submit our research proposal to an institutional review board. This committee shall
review whether our research aims, and research design are acceptable at an ethical capacity.

For the issue on Informed consent, we ensured that the participants knew the purpose, risks, and
benefits behind the study before they agreed or declined our offer.

For the issue on Confidentiality, we shall keep that information pertaining the details of
participants hidden. Anonymity shall be practiced so information cannot be linked to the
respondent in question. We do not intend to keep the information longer than is required

For the Potential for harm issue, any type of harm was kept to an absolute minimum.
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Ekwueme, Warrick & Nwosu, Frederick. (2020). Microfinancing Alternatives for Small and
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Golafshani, N. (2003). Understanding reliability and validity in qualitative research. The

Qualitative Report, 8(4), 597–606.

Kimaiyo, D. (2016). Factors limiting small and medium enterprises access to credit in Uasin
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Kothari, C. R. (2004). Research methodology: Methods and techniques. New Age

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