SMEs advised to do due diligence before applying for credit funding

Owners of Small and Medium Enterprises (SMEs) in Uganda, seeking credit funding from different financing institutions, have been advised to first perform their own due diligence as a way to limit the chances of applying for the wrong kind of financing.

The call was made by Barbara Kasekende, the head of Business Advisory at the Uganda Development Bank (UDB), while speaking during a fireside chat at the Emin Pasha Hotel in Kampala recently.

The event was organised by the United Nations Capital Development Fund (UNCDF) under the theme, ‘The promise of Digitalisation: Unlocking finance for MSMEs.’

Kasekende said many SMEs end up missing out on vital funding due to the owners not being exactly sure of their financial needs, and not all financial institutions provide the same kind of lending.

“Whether the financing is in the form of venture capital, or a grant, or commercial banking– you need to know what type of financing you need for your business. When we come to impact investing, it is development first. We look at the development indicators; what impact are you creating in Uganda, to drive socio-economic transformation?” Kasekende said.

She said, “Before you come to UDB, please do your due diligence and try to understand the facility you are applying for before you jump on, just because you have heard that it is of low interest rate and has a prolonged grace period for repayment. You need to know what it takes to prepare for that facility.”

She said small business owners need to keep track of how their enterprises are running including processes and market presence.

Aaron Akampa, the head of Enterprise banking at Stanbic bank said, digitalization goes two ways which include running and growing the business.

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“Running the business refers to tools that allow you track data, tracking information that goes in and out of your business; tools that allow you to manage your payroll, those that allow you to measure productivity of the people you work with, among others,” Akampa said.

“However, lack of information is so real. People tend to push the digitalisation element to growing the business but without tools, to be able to track your business activities, it is near impossible for the MSME to know whether the debt they so much seek is actually good for them or not,”Akampa added.

Nelson Kasadha, the Programs Manager at the Stanbic Business Incubator Limited (SBIL), said SMEs need to be comprehensively prepared if they are to tap into different funding opportunities.

He said, “As the Stanbic Incubator, we want to support SMEs to be able to raise capital for growth and scale. We talk about two areas of intent; making them bankable and making them investable. That is not an easy job in Uganda. Every day, I get people from the supply-side of capital saying they have money and are looking for SMEs that can take it in.  Across credit, grants, and equity, everybody is looking for people who are investor-ready. On the other hand, I also get SME owners walking in everyday, asking to be helped to get money for growth, from our sister subsidiary, Stanbic Bank. But when you assess how ready they are, they seem lost.”

Kasadha said, “We have decided to reposition and become a platform that brings together the demand-side and the supply-side of capital as a comprehensive solution for our SMEs. We are building a pipeline of SMEs that demonstrate potential to grow and scale, supporting them to build business capabilities, increasing their competence to make smart financial decisions, and connecting them to blended finance products that, collectively put together, make it accessible and affordable for our SMEs. That has meant that we tighten our screening and due diligence processes to make sure that we focus on entrepreneurs who are committed and have genuine intentions of taking their businesses to the next level. Whoever is coming to the Stanbic Incubator, looking for support towards raising growth capital, please know that our screening process is very tight.  This is because we must make sure that by the time we present you to other institutions for funding, you are ready.”

He said the Stanbic Incubator has reduced emphasis on class-room based training, and are more into hands on coaching and taking the SMEs leaders into a comprehensive transformative experience that enables them to develop a new identity and mindset, inspiring them to take bolder growth decisions, and expose them to growth opportunities within the Stanbic network. This enables the SMEs to become credible and attractive to providers of capital; investors or funders.

Joel Muhumuza, the Chief Executive of Flyhub Uganda, the Fintech subsidiary of Stanbic Uganda Holdings Limited, said small business owners also need to leverage on digitalisation to push their business entities forward, while focusing on learning the new trends on the market.

“Banks, fintechs and financial institutions will need to adjust how they view and support businesses. It will require innovation and which is why Stanbic Uganda Holdings decided to expand its offering beyond traditional banking,”Muhumuza said.