SMEs should use loans to finance growth, not to start processes – Experts

Businesss should only use loans to finance a growth process, and not to grow their processes, business owners have said at the BusinessDay’s Top 100 Fastest Growing SMEs in Nigeria event have said.

Discussants who spoke on “Access to Finance/Sourcing and Raising Finance for SMEs” agreed that business owners should have their basics ready to scale before trying to get loans as this will prove their capability to potential financiers.

Yvonne Ofodile, MD, Zetile Oil & Gas Limited said financiers want to see how interested and passionate one is about their business before they invest in it.

Hence, “the first thing is, what have you done for yourself, how much bet have you put on your own business,” Ofodile

Yonodu Okeugo, commercial leader, VFD Microfinance Bank said business owners should ask themselves frankly if they are the stage where they should be looking for loans as a means of financing.

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“If your business is at the initial stage, maybe you’re launching a product, and you have not been to the market nor know your cash flow, you shouldn’t be looking for loans,” she said.

“But when you’ve begun to see a trend in how your product/service is purchased, then you can now take some amount of debt to finance that growth process.”

She added that sometimes people come to banks and say they want a 100 million, but these people have not even invested 2 million in their own businesses.

“Why don’t I just buy the company is my question. If I’m going to give you maybe ten times more than what you’ve invested in yourself, maybe the conversation should be a bit different,” Okeugo said.