Ask any entrepreneur what is the biggest challenge in running his business and he will be quick to tell you that it is finance. This is because in recent times, finance has been identified as one of the most important factors that determine the growth and survival of any business.
Access to finance allows an entrepreneur to undertake productive investments, expand the business and also acquire the latest technologies, thus ensuring the business competitiveness.
Experts contend that a poorly functional financial system could seriously undermine the macroeconomic fundamentals of a country, thereby resulting in lower growth in income and employment.
Despite their dominant numbers and importance in job creation and poverty reduction, the Micro, Small and Medium Enterprises, have, traditionally, face difficulties in obtaining formal credit from banks.
This is because the maturities of bank loans that are extended to MSMEs are often limited to a period far too short to pay off any sizeable investment.
Moreover, banks in many developing countries have traditionally lent overwhelmingly to the government and other multinational companies, which offered less risk and higher returns
For instance, in recent times, figures released by the Central Bank of Nigeria had indicated that the flow of credit from banks to MSMEs had not been encouraging.
This underscores the reason why the apex bank in a bid to improve access to affordable ﬁnancing for MSMEs last year directed all Deposit Money Banks to contribute five per cent of their Proﬁt After Tax annually to ﬁnance the sector.
Based on official statistics from the Bank of Industry, the funding gap for MSMEs is estimated at about N700bn.
Despite this huge funding gap, the MSME sector has provided employment to an estimated 60 per cent of the Nigerian workforce, thus making the sector the highest employer of labour.
The sector has not only created employment, it has also perform other vital roles such as accelerating rural development; stimulating entrepreneurship; mobilising private savings and harnessing them for productive purposes; and contributing to domestic capital formation.
Despite its various contributions to the economy, the major challenge facing many small and medium scale entrepreneurs still lies in the task of getting the needed funding for their businesses.
Besides funding, the growth of this sector according to experts has been hampered by low access to local markets, poor access to credit; poor information flow; discriminatory legislation and poor access to land.
Others include weak linkages with other business along the value chain; weak skills, knowledge, attitude and safety measures as well as lack of efficient hard infrastructure such as power, roads, and energy
But these according to experts could be overcome if these operators of MSMEs understand how to take advantage of micro-credit policies.
They said that since the financial sector is an evolving market, there is need for entrepreneurs to be abreast of various policies being unveiled from time to time by both operators and regulators of the banking sector.
For instance, most microfinance banks have various units and products that could assist in boosting the activities of MSMEs.
SMEs could benefit from MFBs by being brought into the financial cycle through inclusion into the financial system.
To be able to access bank loans, there is also the need for the business to be registered as an entity with the Corporate Affairs Commission.
Equally important is the need to have a mission and a vision statement that would drive the effective implementation of the strategic objectives of the business.
Experts also said that a key factor that would determine the granting of credit by banks to any business is the level of proper book keeping.
They said this is vital because without it, attracting the interest of banks in areas of funding might be difficult.
A finance expert, Mr. Seun Onatoye stated that there “is a need for entrepreneurs to have bankable projects in order to enjoy credit facilities from banks.”
Onatoye, a Chartered Accountant, also noted that “there is a need for an entrepreneur to have integrity, capacity and a profitable business to benefit from banks lending.
Others, according to him, include the need to register one’s business, accurate book-keeping, and vision and mission statements.
All these according to him, will have to be based on the company’s strategic intent.
“Managing your own business is not the same thing as having a career. Business is a way of life and as such a business plan is the compass that directs a company in the desert of challenges.
“Business owners can easily derail if not guided by a plan that will make their project bankable.
“Any SME that wants to attract the interest of banks in areas of funding will also need to be subjected to appraisal because it is on the basis of appraisal that we know how profitable the business is and how much will be needed,” he added.