SMEs advised to borrow wisely
Featured

18 January 2019
Author  
Development Bank of Namibia (DBN) Head of Marketing and Corporate Communication, Jerome Mutumba, says that as the economy begins to improve, entrepreneurs will find greater confidence to establish SMEs, and existing SMEs will seek finance to grow.
He, however, says confidence should walk hand-in-hand with responsible borrowing which takes into account the financing needs of the enterprise and also considers the level of expenditure and the cost of financing.
Mutumba says most SME entrepreneurs apply for finance with a high degree of confidence and certainty; unfortunately results of the operation may fall short of expectations.
In light of this reality, SME entrepreneurs should follow the approach of larger enterprises and plan for finance in a conservative manner.
Mutumba gives the example of a start-up SME that purchases a delivery vehicle. He explains that although the borrower might apply for finance for a newer or more expensive vehicle, a reliable older vehicle may be of as much utility as the new vehicle, but with a significant cost reduction.
The older vehicle is also less of a risk in terms of repayment of the finance.
Savings made on the purchase of the older vehicle may enable the SME to pay the salary of a productive employee for a number of months, or pay for the purchase of another productive asset.
The spin-off from reducing the level of expenditure is a lower cost of financing, Mutumba says.
The repayment will consist of two elements, repayment of the principal and repayment of the interest. If the level of expenditure is lower, the monthly amount and the monthly interest may be lower. Alternatively, the duration of the loan may be shorter.
Both of these approaches have significant benefits for the enterprise, as greater profits would result from the lower repayment of finance.
The Development Bank of Namibia has a mandate to finance SMEs and to counsel against unnecessary risks adopted by borrowers.
If financing decisions eliminate luxury and seek productivity instead, Mutumba concludes, just enough can definitely be more.
 
 
 
492 Views
K2_TAGGED

WINDHOEK OBSERVER

The Windhoek Observer is an English-language weekly newspaper, published in Namibia by Paragon Investment Holding. It is the country's oldest and largest circulating weekly.

Contact Us

Windhoek Observer House
c/o John Meinert & Rossini Street
Windhoek West
Namibia
Tel: +264 61 411 800
Fax: +264 61 226 098
www.observer.com.na