By Emmanuel Odoemelam
Would you be surprised to know that most micro, small and medium enterprises, MSMEs, with great daily sales fail to secure bank funding? Although one of the major way banks make money is by charging interest on loan from the money they lend to customers, however, most banks are extremely careful and cautious of lending money to MSMEs. An NBS/SMEDAN survey indicate that only 4.2% of about 17.2 million MSMEs in Nigeria have been able to access loans or overdrafts from financial institutions while new entrants or start-ups find it practically impossible to access funds from banks. In other words, the average MSME business has less than 5 percent chance of accessing bank loan, while start-ups have close to zero chance of accessing a seed funding from banks or investors.
Does this mean that the banks don’t like making money by getting interest from loan lend to more MSMEs? Or is it that they don’t want to be associated with MSMEs? I don’t think so. The fact that some MSMEs are accessing funds shows that there is something they are doing that most are not doing and need to start doing to gain access to business growth funds.
The good news is, with a bit of know-how and the right preparation, you can significantly improve your chances of impressing your bank the next time you want to raise funds.
You only get one chance to make a great first impression. Before you approach your bank, here are some mandatory things you must do to maximize your chances of walking away with a deal.
1. You Must Have Your Business Registered:
There are thorns of MSMEs who are getting support and the reason they get funding is because their business is prepared to receive funding. Funding is about opportunity meeting preparation. One of the real issues you find is that businesses are not just ready yet to receive financing. For example, you can’t expect a bank to fund you if your business name is not registered and does not have a tax ID which is a prove of your wiliness to give to Caesar what is due to Caesar. Things as simple as that is what MSMEs operators fall prey to banks rejection.
Most MSMEs only register their business name living out other necessary registration that is required in the area of their business. For instance, you can’t go to your bank to say you sell fruit juice and you don’t have a NAFDAC registration number. Your bank won’t lend to you, because if they do, and NAFDAC comes to your location and short you down, is all gone.
So ensuring that your business does all the necessary registrations before approaching your bank for loan is very imperative.
2. Write A Business Plan:
A plan is a written map from where you are to where you want to go. A business plan is a written document that shows investors the why, how, and where your business is going to be in the next 10 years or so. The banks and investors know that a business plan won’t automatically make you a success, but it will help you avoid some common causes of business failure, such as under-capitalization or lack of an adequate market.
Your business plan conveys your business goals, the strategies you will use to meet them, potential problems that may confront your business and ways to solve them, the organizational structure of your business (including titles and responsibilities), the amount of funds you require, and, finally, how you intend to repay.
Why this matters to the bank is that, the money the bank is lending to you is deposits money, which the deposits expect to withdraw from the ATM the following morning. So they are very careful and cautious of whom they lend it to. So you must show in your plan that the money will be paid back and how it will be paid back.
3. Prove To Your Bank That You Make Regular Sales:
The number one evidence that you can repay your loan is that your business is making sales and generating profit. Even though you are in debt, your ability to repay is based on how well you are selling. For instance, if you sell XYZ products today and you don’t sell again until two weeks or one month time, the business is so unpredictable.
In business, if your cash runs out, your business will fail. It is as simple as that. Why your cash runs out is due to several possible reasons:
– You do not sell enough
– Your costs are too high for the sales you make
– Your sales and costs are rising nicely according to plan, but you do not have enough cash to fund the increased amount of debtors and stocks, which the extra business brings.
Any bank will rather choose to fund a business that is faced with the challenge of raising funds to meet excessive customers’ demand, than funding a business that needs funds to look for customers.
Grow your business sales to increase your chances of accessing a bank loan.
4. Get To Know Your Account Officer:
Dr. Bruce Perry, in his book, Bonding and Attachment in Maltreated Children, said, “The most important property of humankind is the capacity to form and maintain relationships. These relationships are absolutely necessary for any of us to survive, learn, work, love and procreate. Human relationships take many forms but the most intense, most pleasurable and most painful are those relationships with family, friends and loved ones.”
Most people don’t know and never bother to know who their account officer is. The function of an account officer is not just to for you to call him/her to help you confirm if a particular payment has been made to your account, or help you with confirmation when you send someone to the bank to cash your cheque. An account officer is someone you should develop a very good relationship with, because he/she will be the first person to present your loan proposal. That is why it is critical that you dig your well before you thirst. Don’t start getting to know your account officer when you are in need of funds, know him/her before the need arises. Always invite them to your business location when you can, and ensure that you intimate them with the new progress your business is making. This
process will automatically make them your advocate when your proposal is on the table.