Small and Medium Enterprises (SMEs) have said loan application requirements set by Uganda Development Bank (UDB) have alienated them from benefiting from the government stimulus package.
Speaking during the release of the SME optimism index for the 2020 third quarter yesterday, Mr John Walugembe, the Federation of Small and Medium Enterprises (FSME) executive director, said loan requirements issued by UDB deviate from the envisioned role of revitalising businesses through the stimulus package.
“When we looked at these conditions, we noticed that they are looking at long term financing. People have short term liquidity needs. UDB is giving out loans over a 15 year period. They have 13 requirements which are not bad, but we are in a crisis and liquidity needs to get to businesses,” he said.
Efforts to get a comment from UDB managing director Patricia Ojangole were futile as email inquiries and text messages sent on her known phone number remained unanswered.
However, UDB recently issued a call for loan applications after government allocated over Shs1 trillion as part of the stimulus package with the aim of increasing production of essential goods and services for import replacement and export promotion.
Among the general terms of the loan application are; term loans of upto 15 years, grace period of three years, interest rate not exceeding 12 per cent and a minimum lending threshold of Shs100m.
The required documents include loan documents for existing loans, loan security, a copy of the last two years of audited accounts, a tax clearance certificate and proof of National Social Security Fund compliance, among others.
Mr Walugembe questioned the viability of the requirements noting the entire proposal by UDB ought to be revised if small businesses are to benefit.
Mr Dembe Kasozi, a hotelier in western Uganda recently expressed frustration over a strenuous process where he staked his Shs2b hotel for a Shs1b loan from UDB.
Covid-19 has gravely affected businesses, mostly SMEs, and many are struggling to recover.
Results from the optimism index involving 1,000 SMEs in August, indicate that 96 per cent of respondents expect sales and profits to decrease in the third quarter of 2020 due to subdued demand.
“11 per cent of the SMEs expect sales and profits to remain unchanged while 6 per cent expect sales to increase. The education sector is the most optimistic about increased sales while the tourism and manufacturing sectors are the least optimistic,” Mr Walugembe said.