It is easier for entrepreneurs to make U-turn when business is having some issues, for example lack of sales or when the owners lose interest. You can sell the business or do a work over to trigger demand in the case of poor demand. However, it is difficult to make U-turn when a weak brand is having backlog of debts that worth more than the value of the business itself. No one will be willing to buy except you are highly priced brands. Poor financial strategy kills business faster than competition.

Business and finance are twins, born of capitalist parents. It rarely happens for entrepreneurs to delve into business without assessing financial demands at the initial stage and expectations over time. It takes risk takers to coordinates factors of productions in manner where resultant benefits are greater than the cost.

The fact is; every business resource has cost attached to it. And business runs in cycle, to some, your business cost is their revenue; and your sales is cost to others as well. Economists call it market driven concept; it sets the bedrock for operating a business. Then, financing business side of life is a major hurdle for business people.

Crossing the hurdle

For small and medium scale enterprises, corporate finance still remains one of the major issues that stand against scaling up, hacking growth and meeting operational demands, says Kingsley Ezoh, a Senior Consultant with LSintelligence.

“Financing a business is as important as running the business. Injecting cash or related liquid resources into operation of a business as at when needed are key to achieving desire performance scorecard. However, cash resources must be well managed in line with growth expectations that comes after for business that is able to meet market demand”; Kingsley added.

Quest for raising funds for business is a long term issue in corporate environment. Irrespective of size, status or other defining factors that distinguish a business, there seems to be marginal difference as all companies at one time or the other are caught in the web of credit demands.

Discounted truth about banks

“That banks won’t lend to SMEs is a discounted truth. The thing is; lending rate is high and bankers know that interest rate obligation is enough to kill SMEs that access such expensive credit. Many business owners, especially SMEs operators, have impression that banks hate to lend to the segment. This is half-truth that does not balance an equation from both demand and supply ends”; Kingsley narrated

“Lending is a very risky business in Nigeria, banks are in the known and borrowers are not ignorant of the fact as well. That means, Banks will only lend at the point when they are satisfied with credit risk they are betting on. SMEs Managers readiness, capacity to meeting obligations is now an issue to review”, he added.

Doing business is not Alice in the wonderland thing. Forget the fairy tale when you decide to put up a business for show. Banks are in business to lend to anyone that meet up their lending criteria. Many times, SMEs owners ignore this fact. Banks are custodian of people funds; and they are accountable. Some owners owned and managed business would put up incomplete loans application and expect banks to finance it. It doesn’t work that way, really.

Kingsley said; “another important thing is that; when SME operators’ access credits from bank, it comes at steep price. Now the question is; is the project returning more than interest rate demand by the lender? You have to access return on what you are going to use the money for against lending rate. Does it really worth it?”

Structured Your Business if…

Be well position for it if you must access credits from outside. Unless you have a business that is structured, accessing credit from third party will be closed to impossible. Should you intend to seek funds from external sources, you must be willing to structure your business to accommodate that orientation. Some entrepreneurs often feel they should have unfetter right to access loans from anywhere, including banks because they have some project that will return more.

It doesn’t work that way. It is common among SMEs owners to blame banks for not extending loan for their business. That’s the easiest thing to do. But for real, many applications for loans shouldn’t have been put forward in the first place. It is beyond; “I hereby apply for loan in your bank”. Who are you really and what business are you running? How many years have you been in business? What have you done? Lenders will always crave to know.

Tracking performance

If you don’t keep record, forget it! Unless you are above average SMEs owners that keep records, you may have to kiss loans from banks goodbye. It won’t happen in a lifetime if you have no supportive document/records in place. According to Kingsley, it is about data gathering. Data will be used to appraise if your business is credit worthy.  How long have you been banking with us? What is your credit history and your net worth?

Are you in debt at the moment and how does it ranks? How often do cash comes to you – earning capability? How much is credited to your business accounts and how often do you make withdrawal? Yes; or Nay! The fact is, bank response depends solely on the result of your credit appraisal.

Now it is your call to agree or disagree with the terms and condition. Once you understand and agree to the tenor (the time horizon for the loan) and interest rate that will be charge for making the money available, then the process begins. Be careful, sometimes anxiety makes people to sign deals that will kill them. Relax, the bank is not doing you a favour. They are selling their service and I bet, they love you to be coming. Look at the interest rate and the tenor.

Business Finance mismatch, an easy kill

Few business finance mistakes go unnoticed in corporate centre. It is quicker to kill a business if managers engage in mismatching funds. This often occurs when there is tight schedule except for an apparent ignorance that cannot be excused. Meanwhile, tight schedule occurs when there is no adequate plan.

In their quests for credits to finance operations, some managers often sign rush deals that are primarily disadvantageous from beginning. Funds mismatch is a big issue that have ended so many businesses. Rush hour deals have proven to be suicidal for some start-ups, small and medium scale enterprises over and over! Managers that make such mistake are known to be doing business spontaneously. Ability to plan helps business not only to survive competition, but also as a guide to decision making.

As business owners, always review operational and financial demands of your business before you are cash trapped. Always stay ahead of issue like cash shortage. So, mistakes can be avoided.  At a point when a business needs funding; managers could easily ignore compatibility of funds with projects available. Some owners in their sheer need to see funding running through their businesses accounts could ignore characteristics of loans. They just want cash. Funds mismatch, using loans that have a short term tenor to finance project that have long term tenor or vice versa is a very wrong thing to do in business.

VIAJulius Alagbe
SOURCEJulius Alagbe
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