SMEs urged to finalise repayment plan as part of loan applications
Most Small and Medium Enterprises (SMEs) either do not have contracts to furnish the bank with or insufficient collateral which throws a wrench into their plans, Standard Banks’ Head of Enterprise Banking, Dennis Isaacs said.
“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,” Isaacs advised.
Budding entrepreneurs depend heavily on loans from the banking sector to actualise their business goals, and if successfully actualised, these SME’s can positively contribute to the country’s economy in the long run. Isaacs said unfortunately most SMEs want a grace period before they begin their repayment, which the Standard Bank does not offer. Once the Bank grants an SME loan, they need to start repaying it the next month, Isaacs added.
Isaacs further advised that 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.
“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,” Isaacs said adding that it is an important consideration for the bank that SMEs should be able to keep to their repayment schedule and make each payment on time.
Isaacs urged all SMEs who are considering getting bank loans to make sure all the elements of their application are in place. He offered to help those that struggle with the process, inviting existing SME owners to contact him for advice so that they can make informed decisions.