“Nexus between small and medium-sized enterprise budgeting skills and loan repayment in South Africa”

This study’s purpose is to assess the influence of small and medium-sized enterprises’ (SMEs) budgeting skills on loan repayment in South Africa. The quantitative research approach was selected as the appropriate methodology for this study, while the purposive sampling approach was selected as the appropriate way to select participants for this study. The primary data for this study came from respondents who were business owners of SMEs in the retail, hardware, construction, and manufacturing industries. SPSS was used to analyze the acquired data. A total of 380 research questionnaires were distributed, and there were 375 that were returned for analysis (which gives a response rate of 99%). Both a regression analysis and a correlation analysis using Pearson’s method were carried out. Pearson’s correlation coefficient revealed a positive and significant relationship between SMEs’ budgeting skills and loan repayment at the level of r =.250, p < 0.0005. These results were supported by the finding that there is a positive and significant association between these two factors. According to the findings of the study, it is recommended that financial providers educate their SMEs on how to prepare various types of budgets, how to follow up and compare their financial objectives to their performance, and that financial institutions and government organizations should assist SMEs with budgeting skills to decrease SME loan defaults.


INTRODUCTION
Small and medium-sized enterprises (SMEs) play a pivotal role in driving economic growth, fostering job creation, and alleviating poverty within the South African context (Olarewaju & Msomi, 2021).However, the viability and expansion of SMEs hinge significantly on their adeptness in financial management.An integral facet of financial proficiency for SMEs lies in their budgeting skills, denoting the capability to judiciously plan and administer financial resources (Schubert & Kirsten, 2021;Shalhoob & Hussainey, 2023).Particularly crucial when repaying loans, these budgeting skills are instrumental in steering SMEs away from financial distress, insolvency, and closure (Warrick, 2017; Arnold & Artz, 2019).The consequences of deficient budgeting skills extend beyond mere mismanagement, encompassing damaged reputations and restricted access to future funding due to loan repayment failures (Le & Nguyen, 2020).Alarmingly, default rates among SMEs have surged to 35%, underscoring the urgency of addressing the root issue -budgeting skills (Msomi & Olarewaju, 2022).
The landscape of financial challenges faced by SMEs underwent unprecedented scrutiny during the COVID-19 pandemic.Entrepreneurs found themselves heavily reliant on their financial acumen to fulfill loan obligations and navigate the dynamic economic terrain.Recent research (Rehman et al., 2019; Le & Nguyen, 2020; Pepple & Enuoh, 2020; Mbogo et al., 2021;Nhleko, Msomi & Ogunsola, 2023) illustrates that SMEs equipped with robust budgeting skills adeptly manage their finances successfully repaying loans.This underscores the critical role of budgeting skills in enabling SMEs to fulfill financial commitments, circumvent fiscal hardships, and thrive in adversity.In the South African context, insufficient budgeting skills and flawed loan repayment practices contribute significantly to the elevated SME failure rates, bearing consequential economic and social repercussions (Chepngetich, 2016;Rajagopaul et al., 2020).
Despite the recognized significance of budgeting skills in SME success, a research void exists regarding the intricate relationship between budgeting skills and loan repayment in South Africa.While prior studies have explored the impact of budgeting skills on SME financial performance within the nation, a discernible gap remains in comprehending the correlation specifically between budgeting skills and loan repayment.Addressing this gap promises to unveil strategies for enhancing financial management practices among SMEs, ultimately fortifying their longevity and prosperity.Improved budgeting skills stand to bolster comprehensive financial oversight, loan repayment efficacy, and credit accessibility, thereby augmenting SME credit ratings and bolstering their capacity for loan reimbursement.

LITERATURE REVIEW AND HYPOTHESIS
This literature review seeks to evaluate the impact of budgeting skills on loan repayment behavior among SMEs.SMEs are integral to global economic growth, yet they encounter challenges in financial management, specifically in budgeting skills, potentially affecting their ability to secure and repay loans promptly.addressing planning components within SMEs, with a potential overemphasis on personal budgeting rather than corporate financial planning.Proficiency in budgeting emerges as a pivotal factor influencing the performance of SMEs, particularly in their ability to repay loans from financial institutions.Entrepreneurs' mastery of budgeting skills not only contributes to revenue and profitability enhancement but also serves as a foundation for setting performance targets and maintaining an organized and efficient operation.The theoretical perspective applied to assess the influence of SMEs' budgeting skills and loan repayment is the agency theory.According to agency theory, the relationship between the lender (principal) and the borrower (agent) is characterized by information asymmetry and conflicting interests (Shapiro, 2005).The lender seeks to maximize returns on their investment while minimizing risks, while the borrower aims to maximize their own interests, which may not align with those of the lender.In SMEs, agency theory suggests that SME owners may not always act in the best interest of the lender and may instead prioritize their own interests.However, by developing effective budgeting skills, SME owners can improve their fi-nancial management practices and increase their ability to repay loans, ultimately reducing the risks and costs for the lender.Therefore, the application of agency theory to assess the influence of SMEs' budgeting skills and loan repayment helps identify effective strategies to reduce information asymmetry and align the interests of lenders and borrowers, ultimately leading to increased success and sustainability of SMEs.
The reviewed literature underscores the importance of budgeting skills in SMEs and their direct influence on loan repayment behaviors.The purpose of this study is to investigate the relationship between budgeting skills and loan repayment among SMEs in South Africa.

The study formulates the following hypothesis:
H0: There is no significant relationship between budgeting skills and loan repayment among SMEs.
H1: There is a significant positive relationship between budgeting skills and loan repayment among SMEs.

METHODOLOGY
In this research endeavor, a quantitative research methodology was embraced, aligning with the positivist paradigm.The data collection process involved the utilization of a closed-ended questionnaire designed with a Likert scale comprising five points.The research targeted SMEs operating in the retail, hardware, construction, and manufacturing sectors within KwaZulu-Natal, South Africa, aiming to assess the influence of SMEs' budgeting skills on loan repayment.The envisaged study encompassed a total of 850 small businesses in KZN, constituting the targeted demographic.
In instances where the target population is either unknown or extensive, the Cochran formula is commonly employed ( Of the 380 respondents who completed and returned the questionnaire, five surveys were deemed invalid due to inaccuracies.The remaining 375 valid responses, constituting a 99% response rate, were meticulously entered into a database, coded, and subjected to analysis.The data analysis employed the Statistical Package for the Social Sciences (SPSS) program.In the conclusive phase, linear regression and the Pearson correlation coefficient were instrumental in discerning the impact of independent variables on the studied variable.This meticulous methodological approach ensures the robustness and reliability of the research findings, contributing to the advancement of knowledge in the realm of SMEs' budgeting skills and their consequential effects on loan repayment.

RESULTS AND DISCUSSION
The investigation into the relationship between SMEs budgeting skills and loan repayment employed Pearson's correlation coefficient, and the results are presented in Table 1.
The Pearson's correlation coefficient results, as depicted in Table 1, establish a statistically significant association between SMEs' budgeting skills and loan repayment (r = 0.250, p < 0.0005).
The positive correlation indicates a causal link between the two constructs (A and B), suggesting that as SMEs enhance their budgeting capabilities, the process of loan repayment becomes more manageable.
These findings align with the work of Ongesa et al. ( 2014), who observed a favorable and substantial correlation between budgeting skills and loan repayment among small and medium enterprises in Nairobi County.Similarly, Nyathi and Benedict (2017), in their study on the impact of money management on loan repayment, reported consistent findings on the influence of budgeting proficiency, emphasizing the significant impact of planning skills on loan repayment within the context of monetary literacy.Conversely, the results of this study contradict those of Kariuki et al.
(2020), who identified a negative and significant association between the budgeting skills of small and medium-sized enterprises and their ability to repay loans.
Subsequently, a regression analysis was conducted quantify the strength of the relationship between the two variables, and the outcomes are presented in Table 2.
The results of the regression analysis, as presented in Table 2, disclose an R² value of 0.063, indicating that SME budgeting skills account for 6.3% of the variance in loan repayment.Note: DV (Dependent Variable) -Loan Repayment.Predictor (Constant) -SMEs Budgeting Skills.
tor of their loan repayment capability (B = 0.443, p < 0.05).This underscores that as SMEs enhance their budgeting capacity, their proficiency in loan repayment likewise improves.Consequently, these results reject the null hypothesis, suggesting no significant relationship between budgeting skills and SME loan repayment, and support the alternative hypothesis, indicating a significant positive relationship between the two variables among SMEs.
The significance of budgetary literacy is underscored in the ability of SMEs to repay loans promptly and avert defaults.Budgeting literacy facilitates forecasting and compliance, allowing SMEs to identify and rectify errors in their financial records promptly.This, in turn, enables timely adjustments, reducing the likelihood of default.
The current findings align with existing research emphasizing the positive relationship between budgetary literacy and on-time loan repayments, reinforcing the notion that well-informed borrowers experience fewer challenges in meeting their financial obligations.
The study's broader implications highlight the significance of continuous monitoring, evaluation, and adaptation of budgeting strategies by SMEs to foster improved loan repayment behavior.This study aligns with the agency theory, suggesting that information asymmetry and moral hazard may influence SME owners' decisions regarding loan repayment.
Based on these findings, the study concluded with the following recommendations: • Given the positive correlation between budgeting skills and loan repayment, it is recommended that financial institutions and government bodies develop targeted financial literacy programs for SME owners.These programs should focus on budgeting, forecasting, and financial planning to help enhance their ability to manage finances and improve loan repayment rates.
• Banks and microfinance institutions could integrate budgeting skills training as a part of the loan application process.By ensuring that SME owners have a solid understanding of budgeting before receiving a loan, lenders can help improve the likelihood of loan repayment.
• Financial institutions could provide SMEs with budgeting tools and resources, such as software or workshops, which can aid in the budgeting process.Making such tools available and accessible could empower SMEs to better manage their finances and, in turn, repay loans more effectively.
• To support SMEs in improving their budgeting practices, it is important to provide them with access to affordable financing options.This could include developing programs that offer low-interest loans or providing grants to support the implementation of budgeting systems and practices.
• SMEs should be encouraged to conduct regular budget reviews to adjust and improve their budgeting strategies continuously.This could involve quarterly meetings with financial advisors or utilizing digital platforms that track and analyze budget performance over time.
• The government should create a conducive business environment that fosters the growth of SMEs, promotes innovation, and enhances their access to finance.
• SMEs should regularly monitor and evaluate their financial performance and adjust their budgeting strategies accordingly to improve their loan repayment behavior.

CONCLUSION
This study delved into the critical relationship between SMEs budgeting skills and loan repayment behavior in South Africa.The research unveiled a positive and statistically significant association (r = 0.250, p < 0.0005) between the budgeting skills of SMEs and their ability to meet loan repayment obligations promptly.These findings highlight the substantial impact that adept budgeting skills can have on the financial viability and sustainability of SMEs.The study underscored the prevalent lack of effective budgeting skills among SMEs, a factor that can hinder their capacity to secure loans and make timely repayments.However, it identified financial literacy training as a potent tool for improving SMEs' budgeting skills and subsequently enhancing their loan repayment behavior.
Future research should investigate the impact of technology and digital platforms on SMEs' budgeting skills and loan repayment behavior, as well as the effectiveness of various financial literacy training programs in enhancing SMEs' financial management.Further study might be carried out to determine the other elements that can have an impact on the repayment of the loan.In addition, the focus of this study was mostly on small businesses in Durban, which is in South Africa.Additional study on SMEs in South Africa's other provinces is something that can be done so that a result that is equivalent to previous findings may be obtained.

Table 1 .
Correlation between SME budgeting skills and loan repayment

Table 2 .
Linear regression SME budgeting skills and loan repayment