Challenges and opportunities for SMEs

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ALL over the Pacific there are many schemes encouraging people to take out micro loans or to leave the ranks of the ‘unbanked’! Banks have special offers aimed at SMEs as long as we can produce the collateral to support the loan. There are government supported schemes and there are various programmes run by donors usually focused on specific sectors like tourism or issue based like climate change. Some people will borrow from friends or family.

Even with all these schemes it is still hard for many small businesses to access them, especially for those a long way from the urban centres.

Chasing the money is not a sound or sustainable business strategy and I don’t recommend it, no matter how attractive the offer may sound. Everything comes with strings attached – make sure you understand what they are and that you are prepared to accept them.

Many entrepreneurs have started very successful businesses with no external finance and have grown their businesses slowly and debt free. The need to borrow money needs to come from some robust and accurate planning where all other avenues have been exhausted and the consequences of borrowing or seeking investment are well understood. Of course, in some cases a well-planned injection of cash will do wonders for the business and help it grow.

Unfortunately, I have seem too many SMEs take out what appears to be very small loans without knowing the interest rates or how they will repay or what they really want the money for. I have even seen businesses borrow to repay earlier loans! If you have limited financial knowledge then seek help from someone who is independent – a mentor or coach or advisor. Ask your local Chamber of Commerce or business association. Research everything that is available before deciding on one particular financial product.

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If your business is interesting it may attract the attention of investors – don’t be flattered into saying yes!! No-one will invest in your business without wanting something back – a return on their investment. Make sure you know exactly what this is before making a decision. How much control will you need to give up in order to get an injection of capital and is it worth it?

Remember, if an offer looks too good to be true then it probably is!!

Finally, desperation is not a good reason to go into debt! Explore every other avenue first. Shop around to see what the best deals are and then seek help to make sure you can afford the deal and that it is the right one for you at this time.   Spend time developing your own financial literacy. The more you know and understand the more likely you are to make the right decision and the more you will feel empowered.

Focus on creating a solid business strategy first and then you can explore the help you might need to turn the strategy into action and achievable goals.

Chris Elphick Breadfruit Consulting, formerly Learnfast Pacific, supporting the development of a range of businesses and organisations in Melanesia and other parts of the Pacific.

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