TIPS ON HOW SMEs CAN ACCESS LOAN FACILITIES IN AFRICA

According to Yes Bank, a business loan allows businesses to borrow money from banks or financial institutions with an agreement to repay it over time. Yes Bank also stated that businesses could use these loans for various purposes, such as expanding operations, purchasing assets, or improving cash flow. SMEs in Africa, particularly Ghana, have had challenges accessing loans from traditional banks due to documentation and collateral issues with banks. However, with the emergence of savings and loans, microfinance, and microcredit, which offer financial services to underserved clients, especially microbusinesses that normally do not have records and collaterals, SMEs now have access to loans to finance their businesses.

However, it is important to note that for a business to access a loan, it should have been in operation for at least one year. Hence, it is not prudent for a start-up to access a loan because starting a business has its own uncertainties, and sales may not be as expected, which can affect repayments. Even though some money lenders offer credit facilities to start-ups as a credit risk personnel and business coach, I prefer that start-ups access financial assistance from friends and family without interest to avoid unnecessary financial burden. Secondly, after a year in business, SMEs have records such as sales and purchases, which helps to determine their stability and capacity.

However, certain things must be noted for a business to access a loan.

INCOME

As an SME, you have to know your level of income, which impacts the amount you can access since it is a business loan and repayment would come from the business.

Secondly you have to know the regularity of your income; for instance, if your business generates income on a weekly basis, especially on weekends, it is important to opt for a weekly or monthly payment schedule, since a daily payment schedule may lead to default.

PURPOSE OF LOAN

Business loans are expected to be invested in businesses to grow, which aids in prompt repayment. Before a business owner accesses a loan, it is important to determine the purpose of the loan; it is mostly for stocks, acquisition of assets such as cold storage, or payment of rent of business premises. If you intend to invest in stocks, it is advisable to invest in fast-moving goods to increase the sales. In some cases, depending on your observation, you can be commercially dynamic and invest in products and services related to your current business that can aid sales, for example, a hairdresser investing in wigs. The ability of a business to pay a loan depends mostly on purpose, and if there is diversion, there is a high possibility of defaulting.

REPAYMENT CAPACITY

Before accessing a loan, it is important to consider the installments to be paid and ensure you have the capacity to do so. For a business accessing a loan for the first time, I recommend accessing a smaller amount with lower installments and with good credit history; as the business grows, if there is a need for another loan, you can increase the amount gradually to avoid default.

However, it is important to note that increasing the loan amount should be your decision and not imposed by the financial institution or loan officer to avoid over-financing, which can affect repayments.

DURATION OF LOAN

The loan duration mostly depends on the policy of the institution; however, as a business owner, it is important to note that the longer the duration, the higher the interest. Most institutions have a loan duration of 4 to 6 months if the purpose of the loan is for capital injection and 12 to 24 months for projects and asset acquisition.

Most financial institutions advise on the duration based on your capacity.

CONCLUSION

SMEs access loans for business growth; thus, the above points must be considered to ensure profitability and prompt payment. It is important to note that the diversion of funds and high instalments often lead to multiple borrowings, which end in default.

If you use the loan for the intended purpose and payment is done promptly, you can always renew your loan facility. However, renewal and increase of loan amount is not compulsory; hence, do not allow any loan officer to compel you into doing so.