Post Covid-19 financing options

Slowly, government has started to ease the lockdown and in the coming days business is expected to resume. But how prepared are businesses to hit the road?

Coronavirus (Covid-19) outbreak has inflicted financial havoc around the globe, leaving many small-business owners struggling. Some entrepreneurs say most businesses were caught off guard.

Business experts say that in the 60 or so days that people were forced into their homes and with no sources of income, there are chances that business owners especially small ones ‘ate their capital.’

But as things get back to normal, unless you had a large amount of cash at hand going before the pandemic, it is likely that you may need some working capital to jump-start your business operations.

At the same time, banks are toying with the idea of lending since most banks have deferred loans after government’s call to do so. That means it will be a bit hard for them to lend.

Diversify business
When it comes to financing SMEs in a Covid-19 rebuilding period, there are several options to consider. But this should be thought through.

First determine how much your small business has been affected.
Experts also argue that before getting capital, Small and Medium Enterprises (SMEs), should be clear about the direction the business will be taking.

Mr Charles Ocici, the executive director, Enterprise Uganda, says equity should not be seen as cash only. Attitude, time, energy and networks all constitute resources required to get back to business after Covid-19.
“If you accessed all the money you need but have a poor mindset, you will go nowhere in business,” he said.

He adds, “Anybody who has run a business, made profit and reinvest it will be attractive for financing. If you have not been able to attract grants, suppliers credit, customers advances and nobody is interested in giving you loans, check yourself.”

Just like Mr Ocici, Mr Emmanuel Dei-Tumi, president of Human Capital international, says the first step is looking into the expenses of the company, lifestyle of the owner and how they need to change.

Financing options
Business is likely to prosper with these factors.
“Capital, technology and entrepreneurship take the top position and entrepreneurship is seen through a good entrepreneur,” Mr Ocici said.

Both experts agree that SMEs should first exhaust all other informal options before going for more formal means of getting money to reinvest.

“Loans! Anyone who starts looking for capital by first looking at loans doesn’t belong in the private sector. If you think you do, give yourself the next five years and you will be defeated; exhaust all the other informal options first,” Mr Ocici says.

The same observation is made by Mr Dei-Tumi who believes formal avenues especially commercial banks are expensive.
“Commercial banks have higher interest rates. Banks keep money for others so you don’t expect them to smile at you. Their processes are quite many; optimise informal sources,” he says.

But what are those informal sources of capital and how viable are they?
There are informal sources where a business can look for money. These include grants, groups, relatives and microfinance institutions.

However, micro finance institutions and banks should be the last resort.
“There are many development agencies. The government is also planning to inject some money in businesses. But how organised is your business? Are you registered? Do you pay taxes? Does KCCA know you?” Dei-Tumi says.

In a country where SMEs contribute over 70 per cent of the country’s Gross Domestic Product (GDP) and employ many, government is recapitalising Uganda Development Bank (UDB) with an aim of supporting SMEs.

Dei-Tumi says; “Even the nongovernmental organisations that give free money will need something to show that their money is not for Christmas. So it is the time to register with the authorities if you are not and your books of accounts need to be in order.

Mr Ocici says grants and favours can be got from government and well-wishers. Accessing these resources will depend on what you have done on your own.

“With simple agreements and trust, you can get funding from family and friends. But you should be ready to show them a repayment plan,” he says.

“After Covid-19, individuals who were managing large companies and the large companies employing many people will easily be listened to,” he says.

He adds; “We will listen to a Mukwano [industries], Stanbic [banks] much faster, than somebody lending smaller money in the village because big companies cause impact to the society.”