Analyzing the Effectiveness of Capital Financing Interest Rate on Business Growth: A Case Study of SMEs in Ndola’s Central Business District

This study investigated the relationship between capital financing interest rates and growth of small and medium-sized business enterprises (SMEs) in Ndola’s Central Business District, Zambia. Specifically, it examined interest rate management practices, the relationship between interest rates and price changes, business sustainability strategies, and the association between loan interest rate types and business expansion. A mixed-methods case study design, combining qualitative and quantitative methods was used. Data were collected by administering 50 structured questionnaires to SME respondents and analysed using descriptive statistics, cross-tabulations, and chi-square tests with SPSS. Results showed that SMEs utilised different strategies to manage borrowing costs, with maintaining a good credit history and negotiating interest rates among the most commonly reported practices. An association between capital financing interest rates and changes in supplier prices was also established. All 20 respondents with fixed-interest-rate loans reported business expansion during the preceding three years. 61.1% of respondents with variable-interest-rate loans reported expansion, while 38.9% reported no expansion. All 12 respondents using mixed-interest-rate loans reported no business expansion. Chi-square test showed a statistically significant association between loan interest rate types and business expansion (χ² = 31.843, p < 0.001)). Additionally, negotiation of loan repayment terms was significantly associated with ability to repay loans on time. The study concludes that loan interest rate arrangements are associated with SME business expansion, with fixed-interest-rate financing showing the most favourable pattern among the surveyed enterprises. It recommends that SMEs strengthen interest rate management practices and that financial institutions consider financing arrangements that support predictable repayment and sustainable business growth.