Oluoch, Lydia2026-06-282024https://repository.kcau.ac.ke/handle/123456789/1163The goal of this research was to evaluate how innovative financing methods impact the sustainable development of small and medium-sized businesses in Kenya. Guided by the specific objectives; to determine the effect of grant funding on the sustainable growth of Small and Medium Enterprises in Kenya, to determine the effect of invoice discounting on the sustainable growth of Small and Medium Enterprises in Kenya, to determine the effect of venture capital on the sustainable growth of Small and Medium Enterprises in Kenya. The theories relevant to this study were the pecking order theory, agency theory, trade off theory and credit rationing theory. The study utilized descriptive research design and focused on 110 SMEs in Kenya audited by Victor O.O & Associates as the firm provided a means to collect unbiased data on SMEs that utilized all the innovative financing solutions and thus an avenue to get balanced data for this study, following regulations under the Companies Act 2015. Interviews were conducted with the owners of the sampled businesses guided by a questionnaire which included questions on their backgrounds and the adoption of innovative financing to facilitate the growth of the business. Information was gathered through semi structured interviews and source documents from third parties such as audited financial statements, customer agreements, funding agreements and participants to guarantee reliability. The information gathered was examined with STATA software using inferential statistics such as regression analysis, hypothesis testing, and confidence intervals. These measurements from the samples were utilized to make conclusions about the broader population of SMEs. Tables and graphs were used to present data and further interpret the results. The regression analysis showed that after taking into account all pertinent factors and assuming no other variables are present, the constant value for the sustainable growth of Small and Medium Enterprises was determined to be 0.5961, which represents the degree of utilization of innovative financing solutions posits that with application of innovative financing the growth of an enterprise measured by ROE will go up by 0.5961. The model showed that holding all other independent variable constant, a one-unit increase in Invoice Discounting results in a decrease in growth of an enterprise by 0.0315, a one-unit increase in Venture Capital results in a decrease in growth of an enterprise by 0.2532 and a one-unit increase in Grant Funding results in an increase in growth of an enterprise by 0.6063. Based on the findings of this study, the pecking order principle seems to stand true i.e. businesses should opt to fund their activities starting with retained profit, then moving on to debt which is usually inexpensive to acquire and finally resorting to issuing equity shares. Hence this study recommends that when trying to grow small and medium size businesses the owners should first utilize internal funds then seek outside inexpensive funding’s such as grants then following the ranking will be inexpensive debt such as invoice discounting when working capital is inadequate and finally issuing equity shares such as venture capital if all other funding solutions become inadequate.enThesis