Abstract:
This study examines the factors influencing loan repayment performance among Small and Medium Enterprises (SMEs) in the Puttalam District, Sri Lanka. SMEs are recognized as critical contributors to economic development, yet many faces persistent difficulties in repaying loans. These challenges are often the result of both internal limitations—such as poor financial planning and weak managerial capacity and external factors, including limited access to credit and environmental instability. The primary objective of the study is to identify and evaluate the influence of five key independent variables on SME loan repayment performance: financial literacy, management competence, business character, access to credit, and environmental factors. A quantitative research approach was employed, and structured questionnaires were administered to 200 SME owners across various sectors within the district. Data were analysed using descriptive statistics, reliability testing, and multiple regression analysis to test the strength and significance
of the proposed relationships. The results indicate that all five independent variables significantly influence loan repayment behaviour. Among them, management competence and environmental factors emerged as the most influential predictors, followed by financial literacy, access to credit, and business character. These findings affirm that both internal business capabilities and external conditions must be considered when assessing SME creditworthiness and repayment potential. The study highlights the need for integrated interventions, including financial literacy programs, business management training, ethical business development, and flexible credit schemes. Additionally, policymakers should implement supportive regulations and contingency plans to help SMEs mitigate the effects of environmental risks. This research adds to the existing body of knowledge by offering localized evidence from the Puttalam District and provides practical insights for lenders, policymakers, and SME stakeholders seeking to improve repayment
performance and credit sustainability.
