By Franklin Alli
Diamond Bank Plc has given insight into one of the requirements commercial banks consider before granting loan to Small and Medium Enterprises (SMEs) in the country.
Njideka Esomeju, Head Emerging Market, Diamond Bank Plc, gave the insight in her presentation on ‘Growth Financing for SMEs,’ delivered recently at the Vconnect and Facebook SME conference in Lagos.
She said: “I found out that so many business operators dwells so much on cash flow. I don’t think cash flow is the challenge for SMEs; rather it is your cash cycle that is a challenge.
Cash cycle is that your banker wants to know how you would turn N5 to N50; what you are going to do, your production cost, how you are going to sell, the market you are going to sell and at the end of the day, you make N50; you can give your banker N2 for debt servicing. So you need to understand your cash cycle. Cash cycle is not the same as cash flow that an accountant prepares for you. You should be able to explain that cash cycle to your banker in your own words.”
According to Esomeju, another thing is that for a banker to accept to fund your business, he is interested in the value your business would add to the economy, in terms of job creation. “So, whatever business you are doing, you need to get your house in order by understanding the nature of the business, understand your customers and being able to communicate with your banker,” she said.
On financing options other than bank loans, she noted: “Basically, we talked about equity financing and debt financing. SMEs can raise share capital through family and friends. This should be your first point of call- also we have angel investors, venture capitals and incubators. It is very important to explore all these options than to borrow from banks. Most times, their services are cheaper.
The whole thing is, for start-ups, I would never advise that you borrow from bank. I would advise you do family and friends option, so that you are not saddled with debt financing when the business has not been firmly established.”
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