SMEs urged to consider suitable funding options

Expensive venture. Commercial banks’ loans are normally structured to deal with short term financing, explaining why their lending rates are prohibitive.

The survey to rank the 2013 Top 100 midsize companies in the country has been launched with a call for the small and medium size businesses to avoid long term borrowing from commercial banks.

Presenting a paper on business financing, Mr Richard Byarugaba, the managing director of the National Social Security Fund, argued that commercial banks’ loans are normally structured to deal with short term financing, explaining why their lending rates are in most cases a no go area for SMEs.

He continued: “It will always be a struggle for an SME to repay a loan attracting about 25 per cent interest within a short time.”

Alternatives
According to Mr Byarugaba, SMEs have an option of mobilising long term financing through private equity, investment clubs, SACCOs, bonds and stock markets, among others, apart from solely relying on commercial banks whose structures are short term rather than long term.
“It is unacceptable to borrow a two-year loan to construct a factory. This is because a factory is a long term project that should be financed with long term financing and not a two-year loan from a commercial bank,” Mr Byarugaba argued.

He believes that banks are meant to deal with short term lending of among others; operating capital, financing of debtors and creditors’ transactions. Responding to Mr Byarugaba’s argument, the Stanbic bank head of marketing, Ms Jackie Namara Rukare, said banks offer financing according to the information they receive from the person seeking to be financed.

She said: “With proper information we can structure the right kind of financing for you and where a bank cannot do that, it should be able to be frank and say so.” Monitor Publication Limited managing director Alex Asiimwe said it is imperative that SMEs are introduced to several forms of financing given their unique challenges and contributions to the economy.

“Today, SMEs are contributing above 30 per cent to GDP, over 30 per cent of employment. It is for such reasons that we continue to support initiatives that will help the sector move forward — among them is the Top 100 mid-size companies,” Mr Asiimwe said.

He also urged the SMEs to cash in on branding saying its rewards are enormous. And one such way of developing a brand, according to Mr Asiimwe, is through advertising.

iladu@ug.nationmedia.com