The effect of business banking on the performance of small and medium-sized enterprises in the city of Cape Town

Abstract

Small and medium-sized enterprises (SMEs) serve as the backbone of economies in developed and developing countries, significantly contributing to job creation, innovation, and economic growth. However, many SMEs encounter challenges in accessing sufficient financial resources, which limits their potential for sustainable development. This study examined the effect of business banking on the financial performance of SMEs in the manufacturing sector of Cape Town. Statistical Package for Social Science (SPSS) Version 29.0 was used for quantitative data analysis. A self-administered five-point Likert scale questionnaire was distributed to 184 participants, resulting in a 72% response rate and 132 valid responses. The reliability of the questionnaire was confirmed using Cronbach’s α, yielding an overall value of 0.760, which is deemed acceptable for exploratory research and close to the threshold for excellent reliability. The findings indicate that BFS and BBS had the strongest positive influence on the financial performance of SMEs, with regression analysis showing significant predictive power for BFS (β = 0.287, p = 0.001) and BBS (β = 0.177, p = 0.032). Additionally, CR (β = 0.245, p = 0.004) demonstrated a notable relationship, though its restrictive nature posed challenges for SMEs. FIA indicated a marginal direct effect on the financial performance of SMEs but revealed potential when coupled with financial literacy programmes and digital tools. Correlation analysis confirmed moderate to high associations between BFS and BBS with financial performance. A one-way ANOVA indicated significant group differences based on financial access and the utilisation of banking services. Homogeneity testing further validated the robustness of the ANOVA results, ensuring reliable findings. The study recommends revising collateral policies to incorporate alternative security options, increasing access to flexible financing solutions, and enhancing tailored banking services for SMEs. It also emphasises the importance of financial literacy initiatives and the integration of digital tools to maximise the utility of FIA. It is suggested that, in future research, sample sizes should be expanded for greater generalisability, and the study should be replicated in other South African provinces to capture regional differences. A mixed methods approach could be adopted to integrate qualitative insights. Incorporating these suggestions in future research would enhance understanding and support targeted interventions. This study highlights the critical role of business banking in SME development, providing actionable insights and strategies to address financial challenges and support SMEs in achieving sustainable growth in the evolving economic landscape of Cape Town.Thesis (MBA) -- Faculty of Business and Economic Sciences, Business School, 202