Sound financial management is key to unlocking SME finance

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Sound financial knowledge and good management help unlock opportunities for SMEs. (Picture: supplied)

Demystify the good financial situation.


During the COVID-19 pandemic and events such as the July 2021 unrest, there has been a range of public and private sector financial support for SMEs. Many SMEs were able to access much needed help, but some faced obstacles in their attempts as they were either non-compliant or unable to interpret or meet the mandatory criteria/conditions.

Andiswa Bata, Co-Head, SMEs at FNB, explains that an entrepreneur can easily register a business and get a bank account activated within 24 hours through FNB digital platforms, enabling them to develop a financial footprint and which enables an institution financial (e.g., a bank) to assess the health of a business for financing purposes.

A good financial culture and management helps to open up opportunities for SMEs, minimizes risks and allows them to have access to finance and credit, a catalyst for the growth of SMEs in the country. Also, it is important to understand that all lending activities and requirements must adhere to the rules and regulations governing lending in the country. Accordingly, banks also follow and abide by these laws in all their lending activities.

“A common requirement that intrigued many small businesses at the start of the hard lockdown was whether they were in good financial health before the pandemic or not,” says Bata, as she unpacks what banks consider when they determine a lending decision. Some of them are:

Good quality – essentially asks questions such as: how does the company manage its financial administration? Has the company followed its normal payments (i.e. having sufficient funds to cover your debit orders or not letting debit orders bounce, paying all your accounts by the agreed date and avoiding the retarded guys). It is also important to ensure that the company maintains CIPC compliance and that all records and submissions are up to date. Businesses are encouraged to regularly check their credit bureau information and maintain a good personal and business credit history.

Liquidity rate – this determines whether an SME can effectively use its assets (including cash) to meet its obligations when they come due.

Profitability – considers the extent of profit the business is able to generate from its sales or services, taking into account operating costs, assets expended, and taxes, among other factors. Healthier profit margins indicate a company’s operational efficiency and competitive advantage.

Debt capacity – the first step of which is to assess the free cash flow (past and prospective) available to honor the long-term debt. Secondarily, any available security/collateral (e.g. property) or personal surety that can support the company’s request for finance.

It is also important to understand the company’s growth prospects (based on industry and life stage). Limited growth potential and/or the absence of a viable business plan may indicate that any funding would only be used to finance losses – for which the appetite for loans is generally limited.

“It is therefore essential for SMEs to understand financial management and to keep accurate and up-to-date financial records. Fortunately, there are plenty of resources available to SMEs to guide them on this journey, such as Fundaba (essentially a business coach, available through the FNB app),” concludes Bata.

This post and content is sponsored, written and provided by FNB.

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