Guardian

There is an ongoing contention on why banks are reluctant to lend money to SMEs even when government is trying to reverse the trend. Businesses which approach their banks for credit are simply turned down and, therefore, have to look elsewhere for finance. Although, it seems banks have become much more ‘picky’ over who they choose to lend money and for those businesses that are lucky enough to be accepted for additional lending. However, experts feel SMEs may have a long wait on their hands, as lenders seem to be taking their time and reviewing every application in detail. FEMI ADEKOYA reports

DESPITE efforts to stimulate the provision of loans and venture capital for Small and Medium Enterprises (SMEs), small businesses often have difficulties financing their growth and innovations.  Although, getting an innovative firm off the ground or expanding it requires money, financing SMEs has been described as a risky proposition for financiers.

To  address this scourge, experts believe that the country needs more investors and banks willing to take the risk, while Nigerian entrepreneurs need a better understanding of investors’ and banks’ concerns in order to be able to provide assurances about the soundness of their proposal.

Venture capital, which provides early finance to start-ups, forms an important source of long-term investment to young and innovative small- and medium-sized enterprises (SMEs).

However, small fund sizes and limited ability to provide low levels of capital have prevented the SMEs from playing a more important role in start-up financing. As a result, SMEs continue to depend on short-term bank loans.

Experts noted that Nigeria’s economic success depended largely on the growth of SMEs achieving their potential, as they had over the years contributed more than half of the total value added in the economy and provided a quantum of all new jobs in the country.

In Europe, the European Commission is presenting an Action Plan through various policies to make access to finance easier for Europe’s 23 million SMEs and in order to provide a significant contribution to growth.

Already, proposed regulatory and other measures aimed at maintaining the flow of credit to SMEs, improving their access to capital markets, by increasing the visibility to investors of SME markets and SME shares, and by reducing the regulatory and administrative burden is undergoing implementation.

Access to finance is essential to the attempt to  enhance the competiveness and growth potential of SMEs. In the context of the current crisis, marked by a fall in lending to the real economy, it is increasingly difficult for such companies to access loans.

In some developed economies, moves have been made to design a strategy to promote better access to finance for SMEs with an adequate action plan which includes increasing financial support from nations’ budget and the investment banks, as well as a proposal for a regulation setting uniform rules for the marketing of venture capital funds.

For instance, the European Union noted that its new regulation for businesses would make it easier for venture capitalists to raise funds across Europe for the benefit of start-ups.

According to the union, the approach is simple: once a set of requirements is met, all qualifying fund managers can raise capital under the designation “European Venture Capital Fund” across the EU. No longer will they have to meet complicated requirements, which are different in every member state. By introducing a single rulebook, venture capital funds will have the potential to attract more capital commitments and become bigger.

European Commission Vice President Antonio Tajani, responsible for industry and entrepreneurship said: “Easing access to finance for SMEs is priority number one to get out of the crisis. Our Action Plan underlines that Europe is doing its utmost to improve SMEs’ access to finance. We aim to strengthen our EU financial instruments for SMEs and to improve their access to finance markets.”

The Chief Executive Officer of the Tony Elumelu Foundation, Dr. Wiebe Boer, had at an Investment summit noted that with the poor funding of Micro, Small and Medium Entreprises (MSMEs), Nigeria and other African countries would need to commit N12.4 trillion or $80 billion to their equity and debt financing in order to drive entrepreneurial development in the region.

According to Boer, investment in entrepreneurial development in the region had been very low and might need to be accelerated in order to fast track development within Nigeria and Africa.

Other experts raised concern about the lack of seed financing for small businesses for start-up, inconsistency in policy development and implementation, as well as unfriendly business climate, all of which have continued to impact negatively on the growth of SMEs in Nigeria.

Boer said that the foundation had already invested about $5 million or N775 million on entrepreneurial development noting that there was a need for public private partnership to aid the growth of the sector.

“By hosting the African Diaspora Marketplace (ADM) Investment summit event, the Tony Elumelu Foundation introduced a deserving set of SMEs to a range of investors. For us, this is an important way of showcasing the reality of entrepreneurship in Africa and fulfilling our own objective of acting as a catalyst for private sector-led growth. We are already working on setting up a competitive interest for the country to examine and compare laws that affect MSMEs growth in order to aid their growth and development.

“The two-day event gave small and medium-sized enterprises (SMEs), representing businesses in multiple sectors from Nigeria, Ethiopia, Ghana, Liberia, Tanzania, South Africa, Kenya and Uganda the unique opportunity to pitch to a group of select impact investors for equity and debt financing in the range of $100,000 to $300,000.

“Each of the nearly 20 entrepreneurs had 10 minutes to present to the investors who had access to their company profiles and information prior to the event. After the pitches were completed, the parties had the opportunity to follow up with one another in the hopes of reaching a funding agreement.

Western Union’s Regional Vice President North, Central and West Africa, Aida Diarra, stated: “Western Union is a proud supporter of the growth of SMEs in Africa, the foundation of economic development on the continent. The ADM is distinguishing itself from other business plan competitions and increasing the value proposition for participating entrepreneurs.

“This investment tackles the challenges many young companies experience throughout the world facing difficulty in obtaining the next stage of financing needed for their growth. We are committed to enhancing consumer education, especially that of MSMEs in order to drive growth and development.”

On his part, the Director General, the Nigeria Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Dr. John Isemede noted that the double digit inflation and banks’ interest rates were not helping the growth of industries in the country.

According to him, Nigeria needed to look inward and enhance capacity building efforts of most companies in order to be able to drive growth and development.

The Founder/Chief Executive Officer, Beloxxi Industries Limited, Obi Ezeude however tasked government on the need for increased access to funding for firms in order to aid the sustainable of many medium firms.

“Access to low interest rate sustainable funds is necessary to aid the growth of small businesses. The lack of long-term capital for industries is the bane of development in the country. With adequate financing, many firms would become big players in the nation’s economy,” he added.