SME INDABA SEGMENT CAPITAL MOBILISATION. [CHALLENGES]

Small and Medium Enterprises (SMEs) play a major role in most economies, particularly in developing countries. SMEs account for the majority of businesses worldwide. Improving SMEs’ access to finance and finding innovative solutions to unlock sources of capital is very crucial in achieving a financially inclusive business ecosystem.

However SMEs are less likely to be able to obtain bank loans than large firms are; instead, they rely on internal funds, or cash from friends and family. With this obstacle SMEs have to find alternative routes of funding, but how do we achieve that?

Mr. Tawanda Mpoperi takes us through some of the challenges faced by SMEs in mobilizing capital. Why is obtaining finance such a major problem for emerging enterprises?

Lack of Initial Capital.

Many entrepreneurs/SME business owners have very limited personal savings. Lack of sufficient own finance when setting up their own business will most likely not allow the business to be fully operational.

Lack of Knowledge.

New entrepreneurs may certainly lack awareness of all of sources of finance that are available on the market. Neither have they had any knowledge about financial support available such as grants and more.

Lack of Credibility.

Most owners of new or small businesses do not have necessary credentials and trust to effectively secure funding from external sources of finance. Even if a new entrepreneur is able to borrow some money from family members and friends, the funds may not be sufficient. It is simply too much risk for banks to lend money to people who do not have good reputation for being successful entrepreneurs in the past.

Lack of any trading record to present to banks as evidence of past business success will discourage lenders from approving loans. A strong trading record would tend to give a bank confidence when deciding to lend money or not for a new venture.

High Interest Rates

In addition, in case of taking a bank loan, there will be relatively high interest charges, which will affect future profits and the cash flow position of the business. Because interest has to be paid on a loan every month, it will increase expenses, therefore lower Net Profit after Interest and TAX.

Lack of Collateral.

New business owners often have to use their own assets such as a house or a car as collateral. Collateral is financial guarantee that the asset will be transferred to a lender in case a borrower fails to repay the loan. Banks are not naïve, without a solid guarantee that can be used against the bank loan; chances are very small that the bank will approve a loan. There is simply too much risk for the bank of losing the money by lending startups and SMEs.

Encountering obstacles is one thing we all have in common. The thing that sets us apart, however, is how we deal with obstacles. Some people allow obstacles to derail them; others have learned to jump the hurdles while running. In many cases, obstacles can be avoided. They are the result of unmanaged emotions, ingrained habits and habitual mistakes we make with other people. Unattended, these obstacles become emotional thieves that we allow into our lives. They steal our focus, sap our mental energy and, sometimes, thwart our most important initiatives. What can we do to close the door on these obstacles so we can capitalize on our opportunities to succeed? Here are some strategies shared by Providence Moyo on how to overcome obstacles.

LISTEN TO YOUR GUTS WHEN IT COMES TO PEOPLE.

We all have that intuition within us that tells us when we are about to make bad decisions, more often than not we ignore this strong feeling. Research shows that one in four startups fail. One of the major causes is incompetence, managerial incompetence to be specific. Choosing the right people, especially the right colleagues, is crucial. Some entrepreneurs end up picking teams based on friendship, on having been like-minded friends working together in the past and more. In the excitement of starting a new venture, you may ignore the feeling in your gut that tells you the person you are about to pick does not have the managerial competence for this next step. They may lack execution skills, or they may be weak on strategic thinking. Instead of bolstering your weaknesses, they compound them. Do not let this be an obstacle to your success.

BE WILLING TO ABANDON WHAT DOES NOT WORK.

We tend to fall in love with our own products and services and find it hard to let something go. It is almost as if we develop blinders that prevent us from seeing what is very clear to outsiders, but not to us. If you are going to play the game, you need to know when to fold the cards.

Evaluate what doesn’t work and have the courage to walk away from it before it becomes a major obstacle. The energy you will have released from letting it go will increase your concentration on what works—it will allow you to apply the intensity of a laser focus on the right target.

STICK TO WHAT YOU GOOD AT. (PURPOSE)

Simplify and stay focused on what you know, and what you do best. In other words, stick to the knitting. Businesses die of indigestion not starvation.” Do not layer more onto your business, and stay focused on your core product. If you believe in your product, and you know that it adds value, do not go looking for the next exciting thing. Learn to focus on what works and stick to it.

WORK ON YOUR HABITS.

Some obstacles are the result of our ingrained habits clinging to outdated modes and ways of doing business because it is what we know best. Good habits help you stay organized, focused, and motivated. In addition, that is exactly what you need to succeed as an entrepreneur. If you are looking for ways to improve your business, start by working on your habits. Develop the ones that will help you achieve your goals and ditch the ones that are getting in your way.

TAKE MENTORSHIP AND NETWORKING SERIOUSLY.

A mentor is a business professional with the experience to provide personalized support; sound business advice and encouragement to help emerging entrepreneurs develop their own abilities and insights. Mentors have the ability to see blind spots entrepreneurs have because they may have most likely went through the path you intend to go. A good mentor helps you save time and mistakes that can cost you.Which is linked to networking as an entrepreneur, Effective networking is an important skill for successful entrepreneurs. It can open doors and create amazing opportunities for investment, clients, and growth. Through your network, you can meet mentors, future employees, advisers, and industry insiders who may advocate for you to other dealmakers.

ABOUT PROVIDENCE MOYO.

Providence Moyo is a seasoned and well-decorated multi-award winning entrepreneur, businessperson, Founder and Director of Divine Pro-Skin care and therapy a thriving value Addition Company that manufactures products from indigenous plants harnessed from rural Zimbabwe.