THE EFFECTS OF LOANS AMONG SMALL MEDIUM ENTERPRISES AT NORTH CALOOCAN CITY: BASIS FOR PROPOSED LITERACY LOAN PROGRAM

Abstract

Effective financial management is essential for business owners to achieve long-term success and maintain a competitive edge. However, many SME owners struggle with daily operations, often losing sight of growth strategies. Compared to large firms, SMEs face greater financial constraints, with limited access to funding posing a significant challenge to their expansion. Loan management plays a critical role in determining the success or failure of credit institutions. In the Philippines, banks have adopted modern lending rules and risk management procedures, particularly following the credit boom, to enhance financial stability and support SME growth. This study employs a quantitative research approach to explore the nature of loan management among SMEs. A descriptive analysis method is used to assess the financial challenges faced by business owners. The research focuses on 50 SME owners in selected businesses in North Caloocan City, Metro Manila. A non-probability sampling method was utilized, and data was collected through a self-designed survey questionnaire tailored to gather specific insights relevant to the study. According to the gathered data, the majority of respondents fall within the age range of 41-45 years old and are predominantly female. Most of the businesses owned by the respondents operate as sole proprietorships. A significant number of respondents rely on personal loans rather than business loans, with the majority opting for monthly loan durations to facilitate quick renewal. In terms of payment methods, nearly all respondents prefer cash transactions.

The findings indicate that respondents perceive loans as beneficial in fostering business growth. The data highlights positive impacts on financial security, business and social support, and budgeting. Furthermore, loans contribute positively to decision-making, financial stability, and overall business success. However, the most significant challenge faced by respondents is the lack of collateral, with an average difficulty rating of 8.02. The study concludes that while loans have a positive effect on the growth and revenue of SMEs in North Caloocan City, significant barriers related to financial literacy hinder their effective use. Many SME owners lack the necessary financial knowledge to manage loans efficiently, which leads to challenges in repayment and financial stability. Loan institutions must prioritize maximizing the clarity of loan requirements and specifications, ensuring that borrowers fully understand the purpose and terms of the loan they are acquiring.