THE SME ENTREPRENEURS I know are a very capable and hard-working group. They are business survivors, especially during the recent challenging times. One of the biggest challenges for SMEs has always been accessing finance when it was most needed.
Businesses need different types of finance at different times to survive and thrive – sometimes that finance comes from the entrepreneur themselves, sometimes from their wider family and friends and sometimes from co-sponsors, investors, banks or business support entities. In recent years, when trading was at its most difficult, the need for finance grew and the strain of repaying existing debt became more acute. Many SMEs found themselves looking for finance at exactly the time it was getting harder to get it.
It seems to me that when it comes to fund availability, the range and sources of funding is extensive and navigating a way through can be quite a challenge. At a minimum, the SME entrepreneur needs to know the following:
The typical SME entrepreneur has not always been sure how best to present their business case to a sceptical banker and too often perhaps opportunities to support business were missed, not fully explored or abandoned. This has resulted in a communication gap between SMEs and providers of finance. Responding to the needs of both, the State has put in place various funding sources and supports – but these funds have been significantly undersubscribed.
To improve the communication problems between SMEs and the providers of finance, the Department of Jobs, Enterprise and Innovation has provided funding to give financial capability training to all SMEs. With bankers doing their own in-house training, this should lead to both sides understanding the other better, and improve SMEs chances of accessing finance.
For the SME to get a better outcome from his engagement with the funding provider he needs the following:
There are many questions which the SME entrepreneur might reasonably ask about the wider process of raising money in the new Irish economy. For example, if the entrepreneur is refused an application for credit is that the end of the line? The answer of course is “no it is not”.
In addition to requesting an internal appeal form the bank, two further options immediately arise. The first is an appeal of the decision to the Credit Review Office (CRO). That office is an independent body specifically established as an appeal mechanism for SMEs who have had their application for finance turned down. In 60 per cent of cases to date the intervention of the CRO has resulted in finance being made available to the appealing SME.
Another option is an application to Microfinance Ireland. This is a body supported by the State, which welcomes applications from people who have been turned down by the mainstream banks. They won’t finance every project, but they do provide finance to people who fulfil certain relatively simple criteria up to €25,000.
To improve their ability to access credit and finance, all entrepreneurs should know what sustainable cash is, how one gets it and how to manage it and mind it, so that they can handle the repayments that borrowings involve. SMEs might also ask: ‘Is it possible to make a profit in a business and still be running up debt in terms of overdrafts, loans or other forms of finance?’ The answer is, absolutely, yes! How and why this happens is something that the SME entrepreneur needs to understand. Converting profitable business to cash is one of the key secrets to survival.
SMEs represent 98 per cent of all the businesses in this country. If we are to grow out of the recession we need them operating efficiently and making money. When it comes to finance, they deserve to get the answers they need. Let’s make sure we help them ask the right questions.
Eugene McMahon is a partner in Mazars and a contributor to the ManagementWorks training for SMEs.
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