Much has been said and written about the challenges of small businesses in Nigeria, a country struggling to cope with high unemployment and low productivity, amidst high population.
Poverty is rampant and all these conditions combine to make creating a conducive enabling environment for entrepreneurship at the lower level, a national imperative.
However, the efforts towards making small businesses to thrive would need to pay attention to funding gaps which appears to be intractable so far.
Small and Medium Enterprises (SMEs) sector supports the Nigerian economy. SMEs constitute the major part of enterprises in the private sector and provide employment opportunity to most of the citizens.
Regrettably, in Nigeria, they have not performed very well. They have contributed just a small percentage to the Gross Domestic Product, unlike their peers in other emerging economies.
Of course, the challenges faced by these small businesses are not only numerous, but also not getting the right attention at the right time and manner. These challenges have been responsible for their slow growth.
Despite its importance, most small businesses fail within the first five years, notwithstanding the presence of agencies established by the government to support the sector.
Most of the failures are due to the lingering challenges facing the sector, which are also key and success factors of small businesses elsewhere.
For instance, funding is a major problem with SMEs in Nigeria. However, the problem is not so much about the sources of the funds, but the accessibility. Most of these enterprises are unable to access both short-term and long-term loans.
Some of the factors limiting funds accessibility by the SMEs include the lack of adequate collaterals and credit information, stringent conditions set by financial institutions, and the cost of accessing funds.
Most Nigerian banks do not support start-ups and even existing businesses don’t have the required collateral.
For SME operators that go through non-conventional banks, the high interest rate is always a burden and eventually, leading to their mortality. As a result of this, most SMEs in Nigeria cannot compete with items or products from other countries, especially China and other Asian major economies.
The narrative, granted, is gradually changing. Nigerian banks are responding to the needs, but more is needed. For Sterling Bank Plc, there is earmarked N50 billion to meet the urgent needs of existing and potential customers in the SMEs space before the end of the year. It is part of efforts to ensure that SMEs and entrepreneurs contribute meaningfully to the nation’s economic growth.
The Group Head, Retail Assets and Liability of the bank, Mrs. Benedicta Sadoh, explained that the bank has developed a scheme known as the Business Support Facility where operators of small businesses can access funds to grow their businesses in a sustainable manner.
According to her, the scheme is targeted at businesses that generate cashflow daily, like most SMEs, and the rental is monthly.
She noted that the scheme does not have a fixed interest rate because it is based on a digital score card, which is a scoring process where information about the prospective customer is used to determine the applicable interest based on his financial worth.
“The scheme that is targeted at entrepreneurs, where you can access loans to meet your urgent business needs and it is payable over an extended period of 24 months. So, you have to pay conveniently over a dedicated period of time with processing time of 48 hours and minimal documentation period.
“The difference between sterling and other banks in terms of this offer is that most banks do a 12 months offer for entrepreneurs because of the volatility of their business but we have extended our repayment tenure from the standard of 12 months, which other banks do to 24 months,” she said.
The Unit Head, SME Sales, Fatai Jelili, said the bank plans to work in partnership with some insurance companies to provide covers for defaulting customers In a bid to mitigate against business uncertainty.
“There is a secondary mitigants, the good practice in business is that you will put in place measures to counter unforeseen circumstances; in that case, we have some insurance partners that we are working with to ensure that we have some collaboration that will up businesses during the period of downturn.
“To ensure we provide some cover for their businesses. We are working with some of our insurance partners to provide this cover for the businesses. This is one of the several offerings that we have to support SMEs.”