According to a 2023 report by the Nigerian Bureau of Statistics (NBS), 80 per cent of small businesses do not survive beyond five years.

It identifies poor financial management for businesses, lack of market research, and inadequate government support as major contributors to business failure.

In its latest survey on SMEs in Nigeria, PricewaterhouseCoopers (PwC), an accounting firm, indicates that SMEs contribute significantly to the Nigerian economy.

The survey, quoting NBS and Small and Medium Development Agency of Nigeria (SMEDAN) 2021 data, stated that SMEs account for 46.32 per cent of Nigeria’s gross domestic product (GDP), 6.21 per cent of exports, 96.9 per cent of businesses, and 87.9 per cent of employment.

But despite the critical role the SMEs hold in the Nigerian economy, the sector has continued to lack adequate access to finance.

In an exclusive interview with The ICIR, the chief executive officer of De-SME Facilitators Limited and who is also a former group head of SME banking at Fidelity Bank, Anthony Chinwe, highlighted five conditions (5 C’s) SMEs should meet to access bankable loans.

According to him, one of the things about accessing credit is meeting the conditions, viz, capacity, cash flow, character, collateral and capital.

Capacity

An SME willing to obtain a loan from any financial institution must have the capacity to pay to loan.

Chinwe explained that for a credit to do well, a borrower must have the capacity to pay the loan he or she or the entity applied for.

Cash flow

The cash flow of an SME must be robust or be stimulated to be robust so that that business will be able to pay over time, Chinwe said.

He expressed concerns that SMEs lack proper record-keeping, owing to not having real professionals to put their financial records in order.

Character

The borrower must have the character, that is, the integrity, willingness, and genuineness to apply the loan for the purpose for which it was approved.

“Character is very important. It’s about the most important in the credit lexicon,” the former banker said.

Collateral

Another condition is the stability, quality, and nature of the collateral to be provided by the borrower.

He explained collateral to mean the secondary comfort position that comes up when the primary repayment source fails.

According to him, SMEs oftentimes lack collateral, which he said is not necessarily their fault but the problem of the Nigerian financial structural environment.

“This is because what we take as collateral not all SMEs can afford it. For instance, not all SMEs can afford a legal mortgage as collateral or have enough shares to mortgage or pay down as collateral.

“As such, you walk around their cash flow and create that flexibility to enable you to lend to them based on their cash flow. You need to understand their business and build their loan around it, rather than emphasising too much on collateral,” the De-SME Facilitators boss said.

Capital

The capital speaks to the promoters’ commitment to the project, that is, how much they have in their equity contributions and how strong it is.

Other conditions could come up depending on the nature of the transaction, but Chinwe maintained the five conditions are fundamental credit issues that need to be addressed.

He said the three types of finances include equity, debt, and hybrid, but noted that SMEs lack access to equity financing and cannot easily go to the stock market to access funds.

“This is where we have been advocating that the government should create a platform that will enable SMEs to access equity funding,” he said.

The De-SME Facilitators boss added, however, that once SMEs can package their transactions and projects in such a bankable way, they could access loans.