Smea to partner financial institutions
In view of difficulties faced by small and medium enterprises (SMEs) to access business loans, Small and Medium Enterprises Association (Smea) has unveiled a plan to partner with willing financial institutions in an initiative dubbed Smea loan guarantee (SLG).
Under normal circumstances, commercial banks retain some collateral when disbursing loans. Despite the arrangement seemingly being punitive to the SMEs, financial experts argue the reasons behind such are somehow reasonable.
“The SLG will see Smea entering into a partnership with willing financial institutions where Smea will guarantee the small business loans granted to its members under terms that Smea will agree with the willing partner, chief among several terms will be tying Smea as a part of the loan beneficially,” said Smea president James Chiutsi.
He, however, said the arrangement will emphasise positive cash flow, sustained over a reasonable period.
Apart from SLG, Smea will also introduce what is called peer-to-peer financing (P2P financing).
Under P2P financing, Chiutsi said Smea will encourage the circulation of funds among its membership.
“This is particularly handy when one member lands a lucrative contract, but is devoid of the required cash.
“At times, some members find themselves with excess liquidity and it idly sits in banks earning little or no interest at all.
The association will, therefore, ensure that these funds are put to maximum use by partnering those with financial need and the investors to benefit both the members involved, that is creating internal business linkages. The involvement of the association will certainly bring order and trust,” he said.
Chiutsi said loan repayment under the SLG will see higher success levels, adding that the
screening process for prospective loan recipients will be twofold.
This means that Smea and the financial institutions will carry their own screening and this will ensure that the loan applicant replaces provision of collateral with personal guarantee.
Smea will offer to its members not only the financial backing but also other business developmental services such as business information and linkages, skills development and markets, among other services.
In this arrangement, the financial institution will benefit because the primary contact in case of default is the association other than the individual borrower.
The association, according to Chiutsi has developed an internal control system to ensure success of such a funding arrangement.
