Post by Trade facilitator on Aug 29, 2021 21:53:27 GMT 1
Small And Medium Enterprises (SMEs): How To Attract Funds From Banks, Investors, And Other Financial Institutions – Part 1
It is easier for the Carmel to pass through the eye of the needle than for the small scale business owner in Nigeria to access easy loan.
If you have ever operated a small scale business in Nigeria at any time, you will bear me witness that the statement or assertion is true.
I have never seen any segment of the country’s business environment that is so neglected as the small scale business segment.
It has always been touted that about 50% of small and medium sized enterprises (SMEs) die or fold up within their first five (5) years globally. But I sincerely believe that it is more in the case of Nigeria.
A typical example is what happened during the Covid-19 Pandemic and after; many small scale businesses were adversely affected, they still have not recovered up till today.
They are still battling to raise elusive funds from some government agencies, but the road is still far for majority of them. Raising funds from banks is almost impossibility.
I can tell you with a high degree of certainty that the problem is not because they do not have great business ideas or that they lack customers. The major problem is lack of finance or what you can describe as lack of easy access to credit or finance.
Yes it is true that the credit or fund providers are usually not disposed to lending to small businesses, but the SMEs themselves have their own problems to tackle. They have to look critically at poor corporate governance structures they put in place that have been inhibiting their ability to raise funds.
Apart from lack of customers, many Nigerian entrepreneurs lack the basic understanding of what it takes to run a successful business no matter how big or small.
Below are some simple but very important corporate governance practices that will make your small business more attractive to banks and other investors.
Separate Your Business Finance From Your Personal Finances
This is the greatest problem; most small scale business owners find it very difficult to separate their personal finances from those of the business.
They run finances of both the company and that of their family together through one bank account. Doing this makes it difficult to separate the transactions of the two entities.
There is no way any investor or financial institution will lend you money when your financial records are in such a state of disarray. You cannot mix your personal financial transactions with that of your business.
No lender whether angel investor or bank can give you a loan without going through the company’s financial records. In most cases these small scale business owners do not keep any financial records.
Financial documents like receipts, invoices, bank statements and others are just dumped into some cartons without anybody recording them for analysis in future.
When the financial institutions call for financial records the business owner will not have anything to show or they will present incomplete records and transactions.
This will of course be difficult to analyze because the records are not organized, and this will bring suspicion in the minds of the lenders.
How To Solve This Problem
You must separate your banking transactions. Have a separate bank account for the business, preferably a current account; and then another account for yourself as a person. This way you will be able to manage your personal banking transactions separately.
Get a person to be recording all your transactions on daily basis, if you cannot afford someone like an account clerk, search for and get free software online that you can use to record your daily transactions; it can also give you daily, weekly, monthly and yearly balances.
With these you will know how your business transactions are going; you will know at a glance the condition of your business at all times.
Seeing your complete business records daily tells you the condition of your business, this will enable you take prompt actions when things start going wrong.
When you start implementing simple financial practices like this; whenever you approach lenders you will have records to show the financial state of your business and thereby increasing your chances of attracting funds to your business.
Stay with us as we strive to continually reveal to you how to solve simple and complex business problems.
Our company trains exporters; should you be interested in learning how to start export business, do not hesitate to contact the admin of this forum.
It is easier for the Carmel to pass through the eye of the needle than for the small scale business owner in Nigeria to access easy loan.
If you have ever operated a small scale business in Nigeria at any time, you will bear me witness that the statement or assertion is true.
I have never seen any segment of the country’s business environment that is so neglected as the small scale business segment.
It has always been touted that about 50% of small and medium sized enterprises (SMEs) die or fold up within their first five (5) years globally. But I sincerely believe that it is more in the case of Nigeria.
A typical example is what happened during the Covid-19 Pandemic and after; many small scale businesses were adversely affected, they still have not recovered up till today.
They are still battling to raise elusive funds from some government agencies, but the road is still far for majority of them. Raising funds from banks is almost impossibility.
I can tell you with a high degree of certainty that the problem is not because they do not have great business ideas or that they lack customers. The major problem is lack of finance or what you can describe as lack of easy access to credit or finance.
Yes it is true that the credit or fund providers are usually not disposed to lending to small businesses, but the SMEs themselves have their own problems to tackle. They have to look critically at poor corporate governance structures they put in place that have been inhibiting their ability to raise funds.
Apart from lack of customers, many Nigerian entrepreneurs lack the basic understanding of what it takes to run a successful business no matter how big or small.
Below are some simple but very important corporate governance practices that will make your small business more attractive to banks and other investors.
Separate Your Business Finance From Your Personal Finances
This is the greatest problem; most small scale business owners find it very difficult to separate their personal finances from those of the business.
They run finances of both the company and that of their family together through one bank account. Doing this makes it difficult to separate the transactions of the two entities.
There is no way any investor or financial institution will lend you money when your financial records are in such a state of disarray. You cannot mix your personal financial transactions with that of your business.
No lender whether angel investor or bank can give you a loan without going through the company’s financial records. In most cases these small scale business owners do not keep any financial records.
Financial documents like receipts, invoices, bank statements and others are just dumped into some cartons without anybody recording them for analysis in future.
When the financial institutions call for financial records the business owner will not have anything to show or they will present incomplete records and transactions.
This will of course be difficult to analyze because the records are not organized, and this will bring suspicion in the minds of the lenders.
How To Solve This Problem
You must separate your banking transactions. Have a separate bank account for the business, preferably a current account; and then another account for yourself as a person. This way you will be able to manage your personal banking transactions separately.
Get a person to be recording all your transactions on daily basis, if you cannot afford someone like an account clerk, search for and get free software online that you can use to record your daily transactions; it can also give you daily, weekly, monthly and yearly balances.
With these you will know how your business transactions are going; you will know at a glance the condition of your business at all times.
Seeing your complete business records daily tells you the condition of your business, this will enable you take prompt actions when things start going wrong.
When you start implementing simple financial practices like this; whenever you approach lenders you will have records to show the financial state of your business and thereby increasing your chances of attracting funds to your business.
Stay with us as we strive to continually reveal to you how to solve simple and complex business problems.
Our company trains exporters; should you be interested in learning how to start export business, do not hesitate to contact the admin of this forum.
