Assessing the Effectiveness of Capital Financing by Commercial Banks on the Growth of Construction Firms: A Case Study of Selected Construction Companies in Lusaka

Capital financing is very important for the growth and sustainability of businesses across all sectors but is especially important to capital-intensive industries such as construction. Construction companies face difficulties in terms of accessing funds for themselves, thereby leading to stagnation of projects. The current downturn has led to severe idleness, has affected construction workers, and resulted in decreased revenues for the sector. The main objective of this study was to assess the effectiveness of capital financing provided by commercial banks on the growth of construction firms in Lusaka. The study embraced a cross-sectional survey study design, employing a quantitative methodology for gathering primary data. Chi-square was used to determine associations between variables. The study found that construction firms in Lusaka rely heavily on a variety of capital financing options from commercial banks, with medium-term loans, asset financing, contract financing, and overdrafts being the most commonly used products. Firms primarily used financing for equipment acquisition, project expansion, payroll, materials procurement, and securing contracts, reflecting a strong link between bank financing and operational capacity. Statistical analysis revealed that the frequency of bank financing use is significantly associated with the type of financing accessed, while firms using financing more frequently tend to perceive the products as less suitable for their needs. Capital financing was shown to support growth by enabling sector entry, revenue generation, workforce expansion, multi-project management, technological upgrades, geographic expansion, regulatory compliance, and strategic planning, with equipment acquisition and project expansion identified as the main areas of impact. Operational performance improved through progress-based disbursements, procurement cycle financing, maintenance funding, bulk supply credit, subcontractor settlement financing, budget control, contingency funds, quick-release credit, inventory management, and supplier coordination. However, firms faced challenges in accessing financing due to collateral review delays, strict eligibility requirements, inconsistent cash cycles, high interest and fees, administrative hurdles, prolonged internal reviews, and adverse market conditions, which collectively constrained timely access to capital. The study recommends several measures to improve access to and effectiveness of commercial bank financing for construction firms. Key suggestions include developing sector-specific financing products with flexible terms suited to construction project timelines, and reviewing interest rate policies to make borrowing more affordable, potentially through credit guarantees or subsidies. Simplifying loan application processes and enhancing transparency around requirements are also emphasized. Establishing a credit guarantee scheme, fostering collaboration between banks and industry associations, and monitoring lending performance are proposed to align financial services with industry needs.