The main aim of the study was to examine the effect of credit crunch on the development of small and medium enterprises, a case study housing finance bank. It was guided by the following objectives; to examine the effect of credit crunch on the financial performance of small and medium enterprise, to determine the effect of retained earnings financing on the financial performance of small and medium enterprise and the effect of Trade Credit financing on the financial performance of small business enterprise in Uganda. In the study a cross sectional research design was used, where both qualitative and quantitative research methods were used. The total number of respondents who participated in the study was 50 and these were entrepreneurs of small business enterprises. Data was collected from respondents by use of questionnaires and an interview guide as the research instrument. Data was analyzed using tables and descriptions were done using percentages. The study revealed that acquired assets pays off funding cost leaving the SME with the asset value. SMEs in their limited asset base have no potential of securing long term loans as a major instrument of debt financing hence giving it a major constraint in borrowing fund to finance their operations usage of funds increases investment prospects of SME. Funds also increases chances of SME success, application of this funding reduces agency costs and SME is able to finance more projects increasing returns. It was concluded that commercial loan financing has a positive effect on financial performance and this effect is statistically significant in predicting financial performance of SMEs. SMEs that use commercial loan financing will expand their business operations and experience significant increase in their profitability. Trade credit financing has a positive and significant effect on financial performance of SMEs. It therefore follows that trade credit is a significant predictor of financial performance. SMEs that use trade credit in financing their operations are likely to see their output and revenues increase thus increasing their level of profitability. The study recommended that investors and managers of SMEs should consider sources of business financing as important determinants of financial performance. SMEs should come together to form larger groups in order to access bigger commercial loans from banks, microfinance institutions and other lenders which are cheaper to source as they carmy lower transaction costs and such costs are shared by SMEs in the group reducing its impact on individual SME ‘s financial performance.