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SBL30 — Scaling up and accessing finance: Growth hacks for MSMEs

Welcome to SBL030 (Sycamore Business Lab): our periodic blog post where we address issues affecting you and your business.

The significant roles played by Micro, Small and Medium Enterprises (MSMEs) in the development of any economy, especially in the under-developed and developing nations, cannot be overemphasized. Findings from these studies also provided pointers that MSMEs contribute about 45 per cent of employment and up to 33 per cent of the GDP in emerging economies and developing nations. It is a no brainer therefore that the economic prosperity of any nation hinges on the ability of these enterprises to scale up from micro to small and medium businesses with little or no visible constraints that will have an adverse effect on the economy.

The Nigerian business hemisphere is totally dependent on financing from the formal sector of the economy, but the financing of the informal sector has been depleted with corrupt and sharp practices, embezzlement and lack of proper data management which has resulted into most financing programmes for MSMEs failing in meeting the needs of the real beneficiaries and eventual folding up of the enterprises.

There are different channels available for MSMEs financing in developing economies, despite most of them being localized, some foreign fund providers have also taken interest in making funds accessible for MSMEs, local banks are championing the process with most banks providing low-interest loans to startups, funding research and boosting market confidence in services. In the same vein, Foreign donor agencies and investors have outlined various scaling up opportunities for financing budding enterprises which may involve the use of technology.

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SCALING UP? Where is the Money?

Understanding why MSMEs fail to live up to the expected growth in scaling up is a step to unlocking their economic potentials. Most developing countries are faced with a plethora of issues as regards scaling up for MSMEs.

These are how you can tackle the challenge:

1. Equity Financing: It is a financial Investments opportunity that allows investors to invest in assets owned by MSMEs, this can be in the form of cash injection in the startup or provision of a management buy-back clause. Agreements as this are mainly entered by private equity investors who want to receive a return of their investments through an initial public offering (IPO), or sale of the controlled assets of the smaller enterprise to a larger one. MSMEs can scale up using this avenue as it allows them to focus on other facets of the growth of the enterprise rested that the financial flow and funding is on track.

2. Supplier Credit: MSMEs can also reach agreements with suppliers to Trade credits that allows small businesses to delay payment for goods and services purchased, and thus helps with effective cash flow management and aiding growth. Suppliers offering credit services can also scale up taking advantage of different peer to peer credit facilities being offered by financial institutions.

3. Provision of short-term credits: Financial institutions are beginning to prioritize lending to MSMEs with minimal interest rates and allowing them to leverage on fiscal policies that will aid their growth. Most developing economies, especially Nigeria have discovered that access to loan facilities has become a heinous task for MSMEs has such the Central Bank of Nigeria (CBN) has been charged with the responsibility of ensuring proper data capturing and dissemination of funds set aside for scaling up enterprises.

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4. Government funding and Cooperatives: The Nigerian Government has come up with different initiatives to aid scaling up and growth for MSMEs, agencies like SMEDAN are mandated to regionalize data incubation for ease of fund access and monitoring. Despite obvious challenges faced by entrepreneurs to access these funds, a lot of positive testimonies have also been recorded.

5. Technology: Due to the COVID-19 pandemic, people have resolved to work from home with an increase in the numbers of people leveraging the use of technology to ensure the order of their businesses is not stopped. Post-Covid would cause a change in the dynamics of working experience as many people would resolve to order the slightest thing online. Due to economic losses incurred from the Covid-19 crisis, it is necessary for MSMEs to consider investing in technology to be a step ahead of their counterparts, as technology would help to centralize or consolidate the distribution of products.

Take away:

As an entrepreneur, scalability, growth and expansion should be seen as essentials in the development of your business plan, this is to ensure that a viable solution will be proffered to encumbrances that might affect your scale-up are adequately catered for should the need arise.

Sycamore.ng offers secured loans to individuals as well as micro, small and medium scale enterprises through the creation of a peer-to-peer loan lending platform. Our goal is to enhance the credit-access culture in Nigeria and create a viable platform to monitor funding mechanisms available for start-up and scale-up of enterprises.

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