ACCESSING CAPITAL: GET A BUSINESS PLAN THAT KNOCKS LOANS’ MANAGERS OUT OF THEIR CHAIRS

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To start a business, one needs to have a set of things put in place. These include amongst others: registering your business name, having an operating place to conduct the business(location), getting employees if you do not want to go solo(sole trader), and finding the market for your products or services, which implies conducting thorough  marketing research. In addition, you require initial capital-money or cash of your own, or from some kind of inheritance, or  through borrowings from friends, relative or banks.

Securing some of the above requirements may be easier than getting investment capital. This is because most African businesses lack the adequate capital required to successfully run a business. So, if you do not have savings, financial inheritances, friends and relatives to borrow from, where do you turn to? It is possible you may consider going to a bank or some kind of financial institution. However, from an African perspective, accessing loans, whether from the World Bank, or other commercial banks is not easy for a number of reasons. Most of the difficulties reflect your lack of business experience,  operating history of your business as well as what is going with your country’s economy.

Consider the following factors and ensure you can beat them all before you go for business loans from banks:

  1. Documented evidence of consistent cash flow, from cash and funds flow statements.
  2. Sufficient collateral or security in case you default in loan payment schedules
  3. Financial data that shows adequate and reliable debt-to-income ratio
  4. Convincing data to show you have the customers and this is where marketing becomes critical.
  5. Sufficient or undoubtful history of credit payments, similar to number 2. above.
  6. You also need to provide personal guarantees at times.
  7. Convincing operating history of your business, which is essentially an audited financial statement, but start-ups have none.
  8. Consideration of the overall economic status of the county and your business  sector performance within it.
  9. Skilled or experienced labor force from all departments including finance, marketing, sales, human resources, et cetera.

Now, in case you meet none of the above requirements, what do you do? Just two options: abandon the exercise or go back and work on each of them then return. In case you wish to return for the fight, ensure you have what is normally called ‘Business Plan‘ document, that is well prepared by experts in business planning and strategy. Such a business plan should cover the entire possibilities a bank manager may consider as obstacles for accessing loans. This is the document that knocks off bank managers out of their seats. Be smart!

 

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Okumu p'Okech Luryan

Okumu p'Okech Luryan, Managing Partner, Noh-Vald Consultancy.
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