SME Financing; a Practical Approach -By Marie Obiora

SME’s are the building blocks of an economy and advanced economies have many thriving SME’s. In developing economies such as we have in Nigeria, the small businesses are really small. They are one man entrepreneurs and even though some of them have been in business for more than ten years or for more than twenty years, they are still very much at the subsistent level with many operating out of their homes. People such as hairdressers, barbers, tailors, plumbers, painters etc., fall within this category. Some operate out of small shacks not because they do not want to own proper shops but because they cannot afford to pay shop rents and furnish an office with required assets or work tools.

SME financing has become a major challenge. The entrepreneurs complain on the one hand that they have no collateral to give the banks and finance houses, the banks on the other hand complain that uncollaterised loans never get paid back. Some of these entrepreneurs require only about =N=300,000.00 ($822) to rent a shop and furnish it adequately. As a half way measure, it would be interesting if the banks could adopt a practical approach to the needs of these entrepreneurs. Since the issue at hand is the payment of shop rents, then the rents should be paid by the banks directly to the Landlords. Also the equipping and renovation of the shops should be paid for by the banks, all within the given facility amount.

Having set up the entrepreneur in his/her new work place the next step would be a practical approach to payback. These entrepreneurs work on a daily basis, their revenue comes as they work, the bank will have to structure a payback system that recognizes this. Perhaps encouraging them to pay specified sums daily or weekly depending on the trade could solve some of the payback problems. Hairdressers for example should be encouraged to pay back small amounts daily into their accounts but on Mondays after the weekend business they should be encouraged to pay in twice or thrice the daily amount. They are also seasonal workers and around Christmas and Easter, they make a lot of money, within this period, payback should be structured to reflect the surge in business and more than half the amount of the facility may be recovered.

Many of these entrepreneurs are highly skilled and very good at what they do, they deserve to be encouraged. With the expansion of a small business comes new workers, one or two hands will be employed to help run the business, this helps the labor market. Apprentices are also able to make their way into recognized business premises to learn a skill or trade. Whichever way you look at it, it’s a win-win situation for all parties including the country’s economy.