This study examined the impact of debt financing on the financial performance of selected small and medium enterprises (SMEs) in Kabale Municipality, Uganda. The study was motivated by the fact that SMEs in developing countries like Uganda continue to face financing challenges, despite their significant contribution to economic growth and development. The study adopted a positivist philosophy and a cross-sectional survey design. Quantitative data were collected from 210 SMEs using a structured questionnaire with Likert-type responses. The findings showed that debt financing, including short-term debt, long-term debt, and trade credit, positively affected the financial performance of the sampled SMEs. This contradicted the commonly held view that excessive debt financing could negatively impact the financial health and performance of SMEs. The study contributed to the existing literature by providing empirical evidence from an emerging economy, where the link between firm financial structure and performance has been under-researched compared to developed countries. The findings suggest that SMEs should be encouraged to utilize debt financing to improve their financial performance. The study also highlighted the need for policymakers to create a supportive environment that facilitates access to affordable debt financing for SMEs in Kabale Municipality and similar developing contexts.