This study sought to examine the effects that debt financing had on the financial performance of selected small and medium scale enterprises located within Kabale Municipality, Uganda. A sample of 66 enterprises was chosen from the municipality's SME sector which spanned various industries including manufacturing, services and retail. Primary data was collected through structured questionnaires administered to owners or senior managers of the enterprises, while secondary financial data covering a 5-year period from 2014 to 2018 was obtained from the firms' annual reports and accounts. Various measures of financial performance were employed as dependent variables in the study including return on assets, return on equity, debt-equity ratio, asset turnover ratio and net profit margin. From the findings, a multiple regression result was computed to forecast financial performance of SMEs from Trade Credit, Short-Term and Long-Term Loans. These variables statistically significantly predicted Socioeconomic growth, F (3, 55) = 3.013, p < .05, (that is, the regression theory is a good fit of the data), R2 = .148. All three variables added statistically significantly to the prediction, p < .05. The findings established that while moderate use of debt, especially long-term loans, helped improve productivity and profitability for some growing SMEs through acquiring assets, excessive reliance on debt beyond a certain threshold served to diminish returns and potentially plunge financially weaker firms into distress. In relation to the third objective, the study recommends that given trade credit seems to appeal to most of the enterprises in the region, financial institutions could consider having some promotions that specifically target other enterprises that have not yet embraced trade credit to do so.