Home' Trinidad and Tobago Guardian : May 11th 2017 Contents MAY 11 • 2017 guardian.co.tt BUSINESS GUARDIAN
ENTREPRENOMICS | BG19
At some point an entrepreneur
needs to source financing and
this can be quite a stressful
situation. Many enterprises
will need finance for several
reasons: working capital re-
quirements, capital projects, vehicle acquisi-
Banks tend to be the natural choice for
business. They offer a wide range of services:
overdraft facilities, credit and debit cards, com-
mercial loans, online banking, mutual funds,
fixed deposits, sale and purchase of foreign
exchange and a host of other financial services
Some banks have identified the SME (small-
and medium-sized enterprise) sector as a spe-
cial segment that offers potential which could
be near $1 billion. One bank recognising this---
Scotiabank---has set up a small business bank-
ing unit to tailor their offering to this segment.
Banks can potentially lower the cost of cap-
ital for a business through its access to low-
cost savings from members of the public. An
SME as any business, can only create value for
its shareholders if its return on investment
is higher than its cost of capital. Therefore,
having access to low cost of capital makes the
hurdle easier to pass and so generate a profit.
Recently, many stakeholders have voiced
their criticism of commercial banks, mostly
about fees and charges. In addition, since the
economic environment has become more ad-
verse, managing the relationship with banks
has become more important for SMEs. But it
is a two-way street and knowing how to get
the most from your financial institution is
important for business success.
Similarly, commercial banks must under-
stand SMEs, as they stand to gain much, es-
pecially in a low growth environment.
In a 2005 survey done by RBC Royal Bank
(Canada) on small businesses, many small
owners were not happy with the level of ser-
vice they got. Some 28 per cent of startups
found banks a challenge and 19 per cent of ex-
isting business found it was difficult to deal
The Productivity, Technology and Innova-
tion (PROTEqIN) 2014 report posits that access
to finance is the second most important obsta-
cle to growth in SMEs in T&T. They reported
that firms tend to use funds from retained
earnings to fund expansion, but this can be
a problem, especially for young firms as they
are like a cash sponge.
One common criticism of banks is that
they do not understand or care about small
businesses. Banks sometimes see the business
market group as homogenous or sometimes
divide them up into small and large. They may
not see the SME sector as a mixed bag.
In T&T, the SME sector can be segmented by
sales volume, assets and number of employees.
However, segmentation can also consider the
sectors of the economy they belong to. This
makes it complicated as each sector has dif-
ferent issues and requirements.
For example, the retailing sector faces some
unique issues like loss of inventory and the
high crime rate. A banking officer should
understand at least the basics in retailing
management and speak the language of store
manager. If the customer speaks about a high
shrinkage, the officer knows this means the
loss of inventory, possibly due to theft or poor
Account managers of banks seldom have the
indepth understanding of the wide range of
SMEs. They may be trained in modern manage-
ment but SME management is quite different.
Large businesses operate differently, have
more formal structures, better governance and
SMEs lack planning systems and sometimes
financial systems are missing. Banks find these
issues difficult to cope with. How do you lend
to a customer who has financials that do not
properly reflect the enterprise's operation?
When a bank meets an entrepreneur, it is a
meeting of the minds and both are different
mindsets. Banks manage risks differently from
entrepreneurs. Banks tend to be risk averse as
they collect funds from people who want safety
first. Banks want their money back and like
to have a backup plan-collateral and 100 per
cent at times.
Fully secured loans can be an issue for most
SMEs and business owners find it hard to un-
derstand this requirement. Sometimes banks
prefer cash or near cash equivalent, entrepre-
neurs think if they did, it would be much easier
to turn the cash into whatever they needed.
SMEs owners also find it puzzling that banks
want to have an in depth understand of their
operations, including their financials. SMEs
generally are very secretive and some operate
in the informal economy avoiding regulation
as much as possible. Since banks can't judge
the credit rating of its client, they opt for little
or no financial support.
At times SMEs do not understand the loan
process and therefore find their applications
An IDB's report (2016) titled, Are Oil and Gas
Smothering the Private Sector in T&T states
that "loan applications from SMEs were reject-
ed mainly because of incomplete applications."
The river is wide. Banks don't understand
SMEs and SMEs don't understand banks. But
both stand to gain. Banks can make better use
of their excess liquidity, improve their profit-
ability and SMEs get a chance to expand their
businesses and so move the economy.
Banks need to see SMEs not as large firms,
but as potential large organisations. See them
not as a homogenous sector, but spanning the
breadth of businesses, at different ages and de-
velopment, family businesses and non-family
businesses. Commercial banks should have a
different strategy for this market.
An organisational structure that has spe-
cialised professionals who have the mindset of
entrepreneurs and understand the SME sector
for what it is. Many business schools do not
incorporate management knowledge from a
grass roots perspective, and this would mean
may account managers are unprepared for the
Further, banks need to stop complaining
about lack of good governance and proper
planning in SMEs. Banks need to get into the
entrepreneurship education business .
While banks will not become a development
institution as, say, NEDCO, they can conduct
training workshops, incorporate small business
information on their websites, develop SME
specific products and show entrepreneurs the
importance of business planning.
In addition, account managers should be
trained in small business management and
looking for the next gazelle, as these fast growth
enterprises hold much potential. This approach
is much like a Blue Ocean strategy.
SMEs also need to do their part and under-
stand what banks need.
They need to find out about the loan appli-
cation process and what are the common errors
that applicants make. If they need assistance
outside of the bank, accountants and other
trusted advisers can help.
One big issue with SME owners is they sel-
dom do a business plan. This is an important
document to not only guide the business for-
ward but access capital. A well written plan
will outline what the organisation plans to do.
Banks love also a good cash flow statement as
Sajjad Hamid is an SME and family business
adviser. He can be contacted via email:
firstname.lastname@example.org; website at
SMEs can help
What is Blue Ocean strategy?
Blue Ocean strategy was developed by global
management thinkers Chan Kim and Renée Mau-
borgne. They observed that companies tend to
engage in head-to-head competition in search
of sustained profitable growth.
Yet in today's overcrowded industries compet-
ing head-on results in nothing but a bloody red
ocean of rivals fighting over a shrinking profit
pool. Lasting success increasingly comes, not
from battling competitors, but from creating
blue oceans of untapped new market spaces
ripe for growth.
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