Stakeholders proffer solutions to SME funding gap
Small and medium-sized enterprises have been counselled to focus on a four-step approach for sourcing funding through personal and family sources, angel investors, venture capital, equity partners before building capacity to seek debt funding. This was the key message from stakeholders at the Leap Africa’s 11th CEOs Forum held recently at Landmark Event Centre, Lagos.
Tayo Oviosu, founder of Pagatech Limited, an online payment solution based in Lagos, advised that small businesses should not seek debt financing upon start-up.
“You need to develop serious capacity before you attempt to seek debt finance. It is always better to try personal contacts, and then you progress to angel investors and then to venture capitals. If the business succeeds, then reach out for equity partners before you think of debt financing,” he said.
Yewande Sadiku, head of corporate investment banking, Stanbic IBTC, in a panel discussion stated that banks are constrained to make available loans to SMEs by regulatory requirement that withholds 53 percent of deposits held by deposit money banks.
“The bank looks at how much cash is available to a business before it decides to lend it money because our objective is to get back what we give out in full. Collateral are safer option due to the fact that we are liable to deposits from customers with us,” Sadiku said.
She advised small business owners to match their loan tenor to their capacity and make realistic cash flow projections as they form a strong consideration in the decision to advance loan.
According to Bismarck Rewane, chief executive office of Financial Derivatives who kicked off the panel discussion, SMEs should pay careful attention to their business environment as investors and lenders consider them too before making up their mind to advance loans.
“The uncertainties in the economic environment affect what decision is taken by investors and debt institutions. As a small business owner, you need to pay attention to decisions of policy makers, operators, marketers, regulators and other stakeholders as any misalignment from these quarters will affect the prospect of your business getting funding,” Rewane said.
Raphael Afaedor, co-founder and CEO of Supermart.ng, a grocery delivery service based in Lagos, advised small business owners to find a reason beyond just making money to convince an investor to put money into their business.
“When we started out, we identified a clear message behind our endeavour. We want to reduce the time wasted in traffic shopping for basic household items.
“We decided that our strategy was to structure our cash-flow, so that we can borrow money from our suppliers and customers but this will mean we have to provide the best service.”
Alessandra Lustrati private sector adviser and access to finance lead for the UK Department for International Development (DFID), suggested challenge funds as alternative finance source SMEs.
Challenge funds, Lustrati said are specific grants awarded to local operators by international organisations to come up with innovative ideas in service delivery or research and development. Investors export social returns in exchange for the funding.
The event had in attendance small business owners, investors and regulatory agencies.
ISAAC ANYAOGU and PRECIOUS ALINTA