SMEs urged to get ducks in a row for banks loans

Budding entrepreneurs depend heavily on loans from the banking sector to actualise their business goals, and if successfully actualised, these SMEs can positively contribute to the country’s economy in the long run.

As such, Standard Bank Namibia has committed itself to supporting the country’s small and medium enterprises (SMEs) in order to boost Namibia’s economic growth through business loans.

“Most times when enterprises approach the bank for financial assistance, they want the bank to immediately assist them to start operating their businesses. They are so highly motivated to start their businesses, but they do not think of how they will repay that loan from the bank,” says Dennis Isaacs, head of enterprise banking at Standard Bank Namibia.

“The first question that I normally ask them is how much they want form the bank. The answer is almost always immediate because they don’t hesitate to tell you what they need. Thereafter, I ask them how they will repay the loan, and there is where the problem lies, they always don’t know,” says Isaacs.

Most SMEs either do not have contracts to furnish the bank with or insufficient collateral which throws a wrench into their plans.

“When the bank assesses a credit application, the first thing they look at is repayment ability. Only when repayment ability is a doubt, then they will resort to collateral. To comfortably repay your loan each month, your total income should be at least 1.25 times your total expenses, including your new repayment amount,” he says.

Grace period

Unfortunately, most SMEs want a grace period before they begin their repayment, which the bank does not offer. Once the bank grants an SME loan, they need to start repaying it the next month.

When SMEs provide financial projections for the business they should make sure to include their debt repayment plan in those projections as it will help alleviate the pressure of making the repayment plan the following month, Isaacs says.

“If you are considering a bank loan for your SME I strongly recommend you evaluate whether what you need the funds for, is important. If you're borrowing N$50 000 for payroll or other routine operating expenses and you're not generating more revenue from the loan, you could find yourself in the same spot three to six months from now. Instead, you should put your loan into the parts of the business that will generate more revenue over time and help reduce future borrowing needs.”