Home  > Access to Finance Headaches of SMEs: Imagined or Real?
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Access to Finance Headaches of SMEs: Imagined or Real?

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Access to Finance by small businesses (SMEs) has been like a tension headache riding on the temples and shoulders of close to 400million entrepreneurs globally (ref: http://www.gemconsortium.org/news/758). The available analgesics have come in various shapes and sizes from bitter pills of high interest rates to intoxicating potions coming as grants and awards. But like the proverbial Golden Fleece, it doesn’t come to all the small businesses who seek it and even those who find it have stories of tears, sweat and blood!

So, who are the stakeholders in the waiting Room?

The SMEs:  Products of often innovative and creative juices, out – of – the box businesses run from undergraduate dorms, home basements or even a shoe box. Strange vocations called enterprises - who ever thought laughter could sell in the international market? Or imagine that a mobile loo could win a Schwab Foundation award (http://www.dmttoilets.com/awards.html)?

The Financial Institutions:  Guardians of OPM (other people’s money) including yours and mine, not an easy task I assure you, however, for money to yield interest, it should  go into productive ventures( like yours & mine) and get returned with a little bit on the top to make everyone happy.  However, there seems to be an allergic reaction to anything that has even the faintest tinge of RISK!

The Government:  Seeking for economic development, Job creation and a better Life for its Citizens through creation of value - adding enterprises (again like yours and mine).

So where is the disconnect? All three parties, strangely, smell squeaky clean!

What kind of Finance do small businesses require?

SME requirements range from seed funds for start up to funds for capital investment and working capital to grow the business. Equipment leasing opportunities, export finance and LPO Financing are also sought by some. Definitely, it’s not a one size fits all situation as small business have different needs at various stages of their development.

 Back to Question: Are Access to Finance Headaches of SMEs Imagined or Real?

It depends on whether you are the doctor or the patient. Those providing the service believe that there is no shortfall in supply. In Nigeria for instance, there are 22 commercial banks, one non- interest bank, and about 900 Microfinance banks each with various products and offerings including SME- friendly as well as the SME–unfriendly ones.

At the recently concluded 7th EDC annual SME Conference, I was pleasantly surprised to encounter a microfinance bank listed on the Nigerian Stock Exchange and a few commercial banks who were actively courting SME businesses when others had said ‘Your baby is UGLY!” No offence intended, its figurative use of language. The first time I heard that was from Dr Doyin Salami who underscored the aversion that some financial institutions have for start-ups. Time will tell and test the “wooing” and eventual relationships that SMEs enter into. Let me know your experience, post a comment at the end of this article.

I have learnt that Start –ups should look in the direction of their pockets (personal savings), family and friends, Business Angels (YES, they still exist!) and Venture Capitalists – if you have a unique product or service and equally sound management team amongst other requirements. Remember that you may need to give up some equity though.

The Central Bank has various developmental finance products including Agricultural Credit Guarantee Scheme Fund (ACGSF), N200 Billion Commercial Agriculture Credit Scheme (CACS), N200 Billion Small and Medium Enterprises Credit Guarantee Scheme (SMECGS), Micro, Small and Medium Enterprises Development Fund for Nigeria and N200 Billion Restructuring and Refinancing Facility (RRF) see www.cenbank.org/Devfin/

Where else is the SME money?

Sometimes, the financial support is indirect.  Being in an Industrial Cluster for instance may save the SME the cost of generating power. One of the agencies charged with the development of small business, SMEDAN, offers Rural Women Enterprise Development Programme (RUWEDEP) Cluster Development Program (Lagos, Calabar, Agbaku-Eji, Aba, Abakaliki, Alo-Borno, Kaduna, Osun, etc), General Entrepreneurship Development Programme (GEDP) and Women Entrepreneurship Development Programme (WEDP).

Women are a special breed (common guys, don’t be jealous!) and as such, there are some special funds for them. If you are a female entrepreneur going into manufacturing, you can approach the Bank of Industry Women in Business Fund which appears to have an attractive interest rate and somewhat relaxed conditions. A good application letter is usually the first step. I have used a template on SME Toolkit with good results, click here to view after enjoying the rest of this article.

On the grants side, you have the YouWIN! Programme (https://www.youwin.org.ng ) which is approaching its third year with several identifiable winners in town.  The last edition was dedicated to women; over 66,000 of them applied.

So the medicine chest doors are there, all SMEs need to do is to knock on them, right?  Not so fast, let’s look at the side of the man whose shoes are pinching so much that a sore has developed. Our Patient, the SME, often tells the story of approaching some of the institutions, receiving a list of conditions, trying to fulfill them, but getting rejected. Hmmmmm, I am scratching my head here, is it a case of water all around us but not enough to drink? Is the nation reaching enough numbers to significantly turn some of the 23.9% unemployed to employers of labour and wealth creators? 

Reasons for the SME- Financial Institution Access to Finance Disconnect

Let’s turn the “looking glass” on the SMEs again for a moment and listen to the complaints of Financial Institutions: “We commit funds to engaging and training small business owners about our requirements across the geopolitical zones but they tell us they cannot leave their businesses for a day!” Further to this, documents asked for such as Corporate Affairs Commission (CAC) Form CO2 now CAC 2.5 which states allotment of shares and evidence of regular filing of Annual Returns are sometimes not available yet they are statutory. Let me have your comments on this – I may be provoked to write on “Essential Documentation SMEs need to Access Finance and how to get them”

 Things fall apart (apologies Chinua Achebe) when consultation is not bottom-up, when communication by the sender does not resonate with the receiver leading to unmet expectations. While capacity building for SMEs is highly commendable so that they can prepare the needed cash flows and bankable business plans, the issue of acceptable collateral, interest rate and timing have fuelled the headache and spread the affliction from head to toe! The supply side in their  air-conditioned edifices are not likely to understand the weight of passion, the flame of commitment and the energy which vision provides in the soul of the entrepreneur. The ability of an SME to create wealth in unimaginable proportions from one “little” viable idea is another pie- in- the- sky dreamer`s concept which may truly be difficult for terrestrials to understand (see how Chinedu Echuruo`s Hotspot App was acquired by APPLE http://www.technobuffalo.com/tag/hotstop/).

We have to get both sides talking, bending and touching in order to bridge the divide. The SMEs have advocated corporate guarantee from Business Member Organizations as a solution while asking for a reasonable repayment period and a single digit interest rate. This is do- able and available in some countries  but with the Monetary Policy Rate (MPR) in Nigeria at 12% already and with interest rates hitting 30%, the question is: What can be done to ensure expectations, dreams and possibilities for rapid economic development are not dashed?

 A final word from my experience as entrepreneur, trainer and assessor

Funds are available from overdrafts to vehicles leases, non – collateralized loans and advances. However, the interest rates, delay or lack of specificity in date of release and steep requirements have made the headache of Access to Finance by SMEs real.

Why don’t you jump into the ship and post a comment on your experiences, aspirations and solutions to SME financing today?

Rely Supply Limited

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  • Currently 5.0/5 Stars.
esomchukwu paul nwobu  |  February 01, 2015
You have done a great job, making start ups easy, giving out tools that prompt success in every business. thank you for this opportunity to learn something new. hope to attend a course with Pan Atlantic University.
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Oluwatofarati Gbadamosi, Ajah- Lagos, Nigeria  |  April 08, 2014
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Fajobi Oluseun  |  December 30, 2013
The case in Nigeria is clear enough. The rich owns the capital plus easy access to other financial aids from all forms of sources. The question is how do a talented poor entrepreneur who has a classic and bankable idea meet all the strict requirement of standard finance companies? Programs like youwin is a contest as different from a proper economic development program. The likelihood of it's continuity is slim. Nigeria needs a professional venture capital structure to invest in local entrepreneurial talents. Banks and other financial institutions should setup small business administration (SBA) unit to partner with budding entrepreneurs on implementation and administration of their ideas.
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olanrewaju ismail abdulazeez  |  November 24, 2013
hmm,my business is a start ups,i running a part time automobile repair workshop using modern diagnostic tools.i plan to develop it to a taxi fleet,training school,vocational training center and online car parts/accesories sales. though i dont have enough capital,i would not approach any finacial institution firstly because my islamic religion is against interest base loan and secondly it will make me relax and stop thinking,instead of planning on talent i will planning on money. i plan to get my finances from personal savings,goodwill and invite investors. i am starting off with the workshop,why?,its because allow me to meet people i cant just meet on the street and gain their trust by working on their cars then i propose my taxi risk management system to them and the other units for investment,i am not saying its easy but i will get it done!
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Walter Emiedafe  |  October 25, 2013