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SMEs should invest more in fixed assets

Sun, 28 October 2012 18:33
by Business Writer
Business

Lack of project experience and sufficient collateral are some of the reasons why small and medium enterprises (SMEs) face funding shortages, says Namibia Procurement (NamPro) Fund senior business development officer, Willie Mouton.
Mouton, who has gained years of experience working in financial institutions such as the Standard Bank Namibia (SBN) and United Africa Group, explains the high rate of failure experienced by SMEs, makes financial institutions reluctant to offer them loans, because they often do not have collateral. As a result, this inadvertently leads to losses incurred by the financial institutions.
Hence, for them to increase their chances of getting funded, Mouton advises SME owners to refrain from spending their earnings on personal items, rather, invest their fixed assets that can always be offered to the financial institutions as collateral.
Collateral are identified as assets pledged as security for a loan. In the event that a borrower defaults on the terms of a loan, the collateral may be sold with proceeds used to satisfy remaining obligations.
Although it would be beneficial for SMEs if there were structured policies allowing easy access to funds by financial institutions, close collaboration and precautions from financial institutions are still needed.
“The high failure rate by SMEs are mostly attributed to lack of experience. Although financial institutions should work towards reducing their security requirements to avail more funding to SMEs, this should be done together with intense management and mentoring on projects to ensure their successful completion,” Mouton says, adding, SMEs should learn to complete projects they are involved in on schedule, because this would improve their project profits, thus giving the contractor a good reference from their client.
A good record can be a good attribute for an SME in terms of getting funds from financial institutions, Mouton states.
NamPro Fund, which was established to offer procurement finances to fund budget needs of entrepreneurs who have secured contracts to supply into the value chain of parastatals, the private sector and the central government, understands the challenges SMEs face.
Therefore, the Fund tries to be more flexible on security requirements but also knows that reduction of security requirements makes its projects more risky. This risk is mitigated by mentoring and guiding SMEs to successfully complete their projects.
Mouton adds that the financial services offered by NamPro Fund differ according to the type of projects in place, although most clients generally approach them for working capital facilities or for a purchase orders.