Vital lessons for small businesses from FirstBank SME forum

Many businesses – small, medium or big direly need some sizeable amount of money for expansion. While big businesses find it somewhat easier to access loans, small and medium enterprises usually have a hard time accessing these funds from institutional lenders. But this does not have to be if the small business operators entrench certain values in the business structure. At the FirstBank SME forum that held recently in Lagos, some vital lessons came to the fore.

After the FirstBank executives gave assurance of the bank’s willingness to fund SMEs, the small business operators complained about the cost of funds – the interest rates charged by commercial banks, currently about 27 percent. Peter Bamkole, director, Enterprise Development Centre of Pan Atlantic University, a panellist at the forum, urged the operators to be more focused on being able to access the funds and not the rate of the funds.

Ibukun Awosika, group managing director, Chair Centre Group, who was the keynote speaker at the event, said: “When you are starting a business, there is a price you must pay, but you must know why you are paying that price. It cost you more to get money at the beginning. Even though the money is expensive, it allows you to bring your vision to life. The important thing is to use that as your driving force, once you know your cost is high, as you do every transaction do not consume your profit but retain a large part of the profit to reduce the debt you will take on next time.”

She added that as business owners continue doing that, they will get to a point where the money they borrowed expensively was small compared with the total amount of money they use for the business and will eventually free themselves of debts. She then urged people in business to delay enjoyment of the benefits till later and use the business to grow the business.

Awosika then cited the example of how she started her furniture making business with no capital, had to take very expensive loans but always pumped in the profit to grow the business and had to delay many gratification. She recounted the touching story of a N1 million loan she took in 1992, at a time finance houses charged as high as 70 percent interest rate on loans because that was the only access she had to the funds she needed when her business desperately needed to relocate or die.

She said: “In 1992, someone gave me a N1 million loan, took the money to a finance house and every 90 days, I must pay a part of the loan and the interest. But I knew it was a matter of life and death for my business, and I was willing to pay that price. I took the money, didn’t know how I was going to pay back, but what is life without risk?”

Explaining how she used the funds, she said, “I moved from the workshop we were using into an uncompleted factory, renovated it and bought the used machines of furniture factories that were folding up. Simply for creating that bigger factory with my workforce, I could then go and search for bigger jobs, because by taking the expensive loan, I had created the capacity to get bigger jobs.”

She was then able to get a really big contract competing with other big players in the industry because of the bigger capacity she had created with the borrowed funds. She further explained, “I worked like crazy, before that, every 90 days I was repaying the loan. When they made the final payment for the job, it was N942,000. At that point, it was 15 months that I had been rolling over the loan. That N942,000 was the final payment for my N1 million even though every N90 days I was paying back part of the money. When I paid off the loan, I didn’t have a dime left but I had a bigger factory and I didn’t stop running from there.”

Today, the Chair Centre is one of the leading furniture making companies in Africa, producing office chairs of international standards.

Awosika reiterated, “So, capital at any cost for you as an SME is not your issue, it is about how you are smart at using it as a leverage for where you want to go to. Knowing the cost will keep you disciplined, because you are not going to waste that money. So, use the money quickly to achieve your goal and return it and don’t stop running.”

By: OLUYINKA ALAWODE