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Breaking the barriers of Accessing Financing

  Sep 9, 2016

The 4th annual Small and Middle Enterprise (SME) conference was home to budding entrepreneurs who convened at Strathmore University; debating and conversing on the latest trends in the industry. As reported on numerous business analysis reports, SME’s currently account for over 65% of the country’s GDP and have been highlighted as a key player in employment creation. However, amidst great potential of these businesses, over 50% of SME’s face a lot of difficulty in accessing financing to conduct and expand their businesses.
The first panel discussion of the conference: Mobilization and Management of Business Finance delved into the particulars of accessing financing, with the panel discussants all weighing in on the importance of diversifying ones revenue sources. Contributing into the subject were the following experts: Mr. Paul Mwai – CEO AIB Capital, Asif Chaudhry – Partner PKF, Neema Rutayasire- Management Consultant Deloitte Kenya and Dr.S.Gachara – CEO Synergy Financial Advisory Limited.
The 4th annual SME conference is a 2 day conference (8th – 9th September 2016) organized by Strathmore Enterprise and Development Center.

  • Alternatives in Financing Sources: Financing Diversification

“Diversify ones financing option is one of the best practices to leverage on in optimizing chances of accessing funding and minimizing the risks of incurring high interests,” remarked Paul Mwai, CEO AIB Capital. Irrespective of financial service providers’ lending rates, SME’s should be more aware of the great array of financing options. This mitigates on the vulnerability of the business into falling prey to bankruptcy and instability. Non-traditional avenues of financing such as private equity & venture capital and capital market listings are attractive asset classes that SME’s can explore to diversify their channels of revenue.

The growth and maturity rate of a business is also a key determinant in accessing financing. However, this should not inhibit SME’s from exploring these alternative financing methods. Organizations such as Flame Tree Group are success stories that should be shared widely.
Flame Tree Group got listed on the Nairobi Stocks Exchange in 2014, listing 190 Million shares at SH 8 each on the NSE’s Growth Enterprise Market Segment (GEMS). Leasing of asset finance is an effective method of cost cutting for  SME’s whose production capacity is low. LPO financing was also discussed by the panelists.

  • Debt Sustainability

Borrowing in business is inherent. However, borrowing to finance debt instead of business development could constrain business operations. Drawing a strategic plan for debt financing, should be informed by one’s capacity to service a particular debt. SME’s should consider living under their means, “In Business, we start small and then grow big,” remarked Dr. Gachara, CEO Synergy Financial Advisory Limited.
Although Equity may be a lucrative option for portfolio project financing, some of the panelists argued that debt is still a cheaper form of raising capital. Equity requires one to manage the costs expectation of dividends, whereas depending on how debt is structured it can be tax deductable. “Make sure that your operations are able to sustain the costs of debt,” Asif Chaudhry, Partner PKF emphasized.

  • Negotiating for a lower cost of financing

The perception of risk comes from a lack of proper track record keeping.  This traverses from transaction history to payment duration of clients and suppliers. “Having an attractive track record could be all you need to negotiate for financing,” said Neema Rutayasire, Management Consultant Deloitte Kenya.  Additionally, “A good relationship with your suppliers can also allow you to negotiate for flexible payment terms.

  • Expanding your Business through Financing

When the business is very young, it’s advisable to work with savings and assets currently at hand.  When the business takes off; options such as external financing in main stream institutions; banks, Sacco’s and Micro financing providers.
LPO financing and invoice factoring, where one assigns debts to the banks, are also viable options. This is usually used when one has a weak track record. “Financing for business expansion must be supplemented with a steady growth curve,” concluded Dr. Gachara, CEO Synergy Financial Advisory Limited.

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