Understanding Credit: An SME Perspective

Small and Medium Scale Enterprises (SME) are a set in the economic system that facilitates and enhances trade, services and productivity in the economic sector. Many SMEs have grown from viable private limited companies to public limited companies, group of companies and even multi-national corporations.

The major determinant of growth of an SME is the popularly known business finance or commonly known loan. The first point of call to the achievements of the above named is the bank. At this point it is pertinent to understand the class of financial institution to attain to either a commercial bank or a micro finance bank. And also understand the specialization of each and class of bank, i.e BSP Bank specializes in manufacturing, AP Bank has their focus in agriculture while Peak Bank focuses in medium and entrepreneurship.

The very first to consider when dealing with commercial bank is turnover which simply means the activities in the account either on a personal or a business name. By this it is wise to understand that every income or proceeds is necessary to pass through the bank account to boost account turnover. Some desperate and knowledgeable entrepreneurs get money elsewhere to make up to their turnover.

Secondly it is imperative to investigate about an acceptable collateral or security within your area. Financial institutions are not Father Christmas that dose out money to lenders as there depositors, investors and regulators are not patient with them. For collateral there is something to hold up to as a fall back.

Collateral or securities phenomenon are determinants of financial institution, institutional framework or precious’ valuable within a locality. It is also advisable to invest our passive income in acquisition of collateral.

Further on security, there is need for partnership. This implies coming together to meet up to an expected business need (especially credit need) the assurance of these is guided by partnership instruction in the bank or corporate affairs.

Partnership is a trending factor in the credit market. Entrepreneurs collaborates with a colleague, business neigbour, friends, mentors, cronies and even well-wishers. This helps to make up business credit. One partner should be able to meet up credit demand where the other partner falls shot. However a memorandum of understanding should be established to back up partnership agreement.

Character is a necessary ingredients in credit as some financial institution ask question of customers integrity. Character goes a long way to determine the prospects ability to pay back.

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Articles by Obioma Ogwuegbu