By Olaseni Durojaiye
While admitting that small and Medium Enterprises constitute 70 per cent of any growing economy, experts have identified funding as the greatest challenge that the sector is faced with even as they noted that the problem has persisted because many SME businesses do not understand the science of raising capital.
The experts who included, Executive Director, Bank of Industry, Mr. Waheed Olagunju; Managing Director, Fidelity Bank, Mr. Nnamdi Okonkwo; Managing Director of the Nigerian Sovereign Investment Authority (NSIA), Mr. Uche Orji and founder of Gamesol, Mr. Abiola Olaniran, listed the criteria for accessing funding by SMEs to include Character, Capacity, Capital, Condition and Collateral.
The experts made the disclosures during a seminar organised by Testimony Place, the Victoria Island, Lagos branch of the HolyGhost Christian Center, which held in Lagos.
Explaining the criteria further, Okonkwo stated that â€œFunding for SMEs is typically in a sequence of personal savings, support and lending from Family and Friends and Loans by Financiers. The initial minimum capital required to translate an idea to an enterprise is usually realised from personal savings and from those who believe in the entrepreneur to support their dreams.
However, funding from creditor would require the entrepreneur to meet some criteria, better known as 5Cs. These are Character, Capacity, Capital, Condition and Collateral. Character is an important requirement in the risk acceptance criteria and it implies that lenders could only give their funds to people who have the likelihood to pay back as at when due. In the case of capacity, it is expected that the SME operator that wants to access funding must have a good business model; money runs only after good transactions. Talking about capital, lenders would typically provide funding up to 70% of the capital and expect the entrepreneur to mobilize 30% of the capital. Condition emphasis the importance of the business environment, this is so because the right conditions would enable lending. Lastly, collateral which speaks to the fact that the lender needs a fallback position just in-case the business goes down. Collaterals must be available for recoup of loans. Collaterals would not be necessary if only we had our values, or high credit ratings,â€ he stated.
Â Also speaking at the event, Olagunju stated that as a developmental bank, the Bank of Industry warehoused different kinds of loans which it regularly made available to business including SMEs adding that as much as N10 million loan could be granted at 5% interest rate from a N5 billion fund made available to the bank by Aliko Dangote at zero interest without asset based collateral. These funding are below market rates because they are development driven.