Small and medium sized enterprises (SMEs) play a crucial role in economic development, both in developing and developed countries. The study examined a wide analytical view on the question of interest rate charged by commercial institutions on profitability and growth of SMEs in Uganda a case study of selected SMEs in Kaharo subcounty Kabale District. The purpose of the study was to assess the effect of interest rate charged by commercial institutions on profitability and growth of SMEs in Kaharo sub-county Kabale District, Uganda. The specific objectives of this study were to: identify the determinants of Profitability in SMEs in Kaharo sub-county Kabale District, Uganda, find out the challenges affecting SMEs in Kaharo sub-county Kabale District, Uganda; and examine the effect of interest rates on growth of SMEs in Kaharo sub-county Kabale District, Uganda. The design used for this study was descriptive method. Descriptive research is a collection and interpretation of data. Both quantitative and qualitative approaches were used to gather information by asking a greater number of people from the sample chosen with known backgrounds and this helped the researcher to get possible, broad and accurate view of responses. A total of fifty (50) respondents were selected for the study. Simple random sampling was used to select the twenty (20) clients of selected small scale and medium sized enterprises while purposive sampling was also used to select thirty (30) traders of selected small scale and medium sized enterprises. From the study findings on determinants of Profitability in SMEs in Kaharo sub-county Kabale District, the highest number of the respondents mentioned business location and the least number of respondents mentioned types of commodities sold. The study findings on challenges affecting SMEs in Kaharo sub-county Kabale District, the highest number of respondents mentioned access to finance while the least number of respondents mentioned limited capital among SMEs. The study findings on the effects of interest rates on growth of SMEs in Kaharo sub-county Kabale District, the highest number of respondents mentioned that it enables small scale businesses to provide sustainable financial services and the least number of respondents mentioned help to improve businesses. The study recommended that The small scale businesses should be encouraged to make savings as their habit so that they can reduce their dependent on the financial institutions for access to finance. The government should reduce on the taxes that are imposed on SMEs so that they can be able to grow and maximize their sales. Small scale and medium sized enterprises should be able to learn all conditions and be competitive so that they can survive competition from big businesses. The government should intervene by providing the necessary better political climate so that SMEs can be able to work and expand their businesses.