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Boosting SME Growth and the National Economy with Lending Products – Blueprint Newspapers Limited

FirstBank of Nigeria Limited has created a variation of SME loan products to support the growth of SME businesses with the necessary funds. AMAKA IFEAKANDU examines the impact and benefits of the SME Loan Facility for businesses and the wider economy

Over the years, Small and Medium Enterprises (SMEs) have been known as the backbone of many economies across the world, including Nigeria. They represent the majority of businesses and remain important contributors to job creation and global economic development. SMEs represent approximately 90% of businesses and more than 50% of jobs worldwide. Available data has shown that formal SMEs contribute up to 40% of national income (GDP) in emerging economies. These figures are significantly higher when informal SMEs are included. According to World Bank estimates, 600 million jobs will be needed by 2030 to absorb the growing global workforce, making SME development a high priority for many governments around the world.

Contribution to the Nigerian Economy

A recent report showed that more than half of jobs in developing countries are created by SMEs and that they dominate the private sector space in the same economies.

SMEs are essential ingredients in the lubrication and development of the Nigerian economy.

The SME ecosystem, as a central pillar of economic growth, contributed about 48% to the country’s Gross Domestic Product (GDP), accounting for 96% of businesses and 84% of employment.

With a total number of about 17.4 million, the sector accounts for about 50 percent of industrial jobs and 90 percent of manufacturing, in terms of number of businesses.

According to the Nigeria SME Survey Report 2010 conducted by the National Bureau of Statistics (NBS) in collaboration with SMEDAN, the SME sector in Nigeria is strategically positioned to absorb up to 80% of jobs, improve income per capita, increase value added to raw material supply, improve export earnings, improve capacity utilization in key industries, and unlock economic expansion and GDP growth.

Impact of the loan facility on different sectors

Manufacturing sector: SMEs in the country have contributed enormously to the manufacturing sector

The sector, as the backbone of the national economy, plays a major role in alleviating the balance of payments account imbalance problem through its export promotion. In addition to providing opportunities for a large number of capable and potential entrepreneurs, it can also help free up scarce capital for productive use.

Education Sector: Education provides the platform for improving the quality of life and the continuous regeneration of knowledge, abilities and skills in society for continued productivity and development. The advent of the Covid-19 pandemic has exposed the reality of the dilapidated and underfunded education sector in the country.

In Nigeria, basic education is funded by simultaneous funding from all three levels of government – ​​federal, state and local government authority.
Federal, state and local governments are mandated to provide 50%, 30% and 20% of education funding respectively to maintain/equip facilities in schools. Records show that over the past ten years, the education sector allocation in Nigeria has not reached the 10-15% of the budget recommended by UNESCO in developing countries. This led to strikes by teachers at all levels of education.
But today, in addition to public education funding, schools across the country, especially private schools, have the option of obtaining loans from commercial banks such as First Bank of Nigeria through its loan products. SMEs to meet other pressing needs ranging from working capital to asset financing.

IT sector

It is a known fact that all businesses across the country, from the smallest to the largest, need modern and affordable office equipment, but obtaining such equipment to meet the needs of the business can be expensive. In today’s business, technological advancement means the replacement or upgrades of equipment that are necessary, especially if you want to stand out from your competition. The office equipment financing option, such as loans, allows the sole proprietorship to pay for the important equipment your business needs

Health sector

The outbreak of the COVID-19 pandemic, which has had a negative impact on the global economy, has strained the country’s health sector. The pandemic has revealed the poor state of infrastructure and facilities in the country’s health sector. But the Central Bank of Nigeria’s (CBN) N100 billion intervention funds in the sector have helped revive some companies in the sector. Health sector stakeholders also said that with the help of the funds, most of the local pharmaceutical industries have increased their production capacities to manufacture face masks, personal protective equipment (PPE), disinfectant for hands, gloves, antiviral drugs, ventilators, medical supplies, among others. The supreme regulator also said N93 billion of the funds had already been disbursed and a positive impact was being felt in the private sector. So it showed that a well managed loan facility will not only help the growth of a business but also the growth of the economy in general.

Main challenges for SMEs

Despite the significant contribution of SMEs to the Nigerian economy, it has faced many challenges that have hampered the growth and development of the sector. Accessing additional funds remains one of the biggest challenges facing SMEs and MSMEs in the country.

Other challenges faced by SMEs include poor capital structure and high production costs. limited access to long-term funds, poor business continuity/succession plans, weak value chain, supply distribution, logistics, weak managerial and technical skills, lack of access to international markets and intensive production processes labor.

Other challenges faced by the sector include lack of skilled labor, multiplicity of taxes, high cost of doing business, among others. The provision of loan facilities is vital for the growth and development of any business. Access to the loan is a great tool to improve a company’s liquidity when there is no cash available to finance the needs of the company. The loan facility from financial institutions is distributed at the discretion of the company and can be applied to different projects and departments of the company

Reasons why SMEs apply for a loan facility

Basically, the main reason SMEs seek loans is to enable them to finance changes in their business that can result in a high return on their investment. SMEs consider a small business loan to enable the business to invest in an expansion opportunity. As the business begins to grow, it becomes necessary for the management of the business to maintain the growth profile to ensure that profits do not decline. The loan can help a company cover business expansion expenses without affecting operational funds. Besides buying equipment, small businesses need a loan to have a stable cash flow to maintain their operations.

Why FirstBank created SME lending products

First Bank of Nigeria Limited, Nigeria’s most sought-after banking brand, has developed different loan finance products for SMEs to meet their respective challenges in times of financial need. The bank believes that SMEs are the main drivers of the economy, hence its reason for designing variant loan facilities to support business growth with the necessary funds. Some of the bank’s SME product loan finance includes Cement Distribution Finance, First Edu, Office Equipment Health Finance Facility, among others.

Cement distribution financing

Cement Distribution Financing provides structured financing to distributors of cement companies on the bank’s approved list. This is to help the working capital of distributors for their commercial expansion. To access the loan, you must have KYC documentation, meet account opening requirements, and loan processing form and documentation. The loan will be for 12 months with a maximum loan amounting to N120 million. The security on the loan is structured in a flexible way while the interest rate is flexible and competitive with a management fee of 1%.

Early education

First Bank’s First Edu loan product was designed specifically to provide financing to schools for the varied needs of the segment. This includes working capital, asset finance, school bus and commercial mortgage to pre-primary, primary and secondary private schools/approved A-level educational institutions with a steady stream of revenue. The loan attracts tenor of 90 days up to 4 years with maximum loan facilities totaling N100 million. Such a product does not need a guarantee, but the acquisition of the property is guaranteed by a legal mortgage. The interest rate of the loan is flexible and competitive while the management fee amounts to 1%.

Office supplies

The bank developed this facility to partly finance the acquisition of assets for retail customers. The loan will last for a period of 18 months with a maximum loan of N5 million and above while the collateral is the asset(s) purchased. The interest rate on the credit is competitive with a management fee of 1%.

Health Financing Facility

HFF was designed to provide credit facilities to pharmacists, private hospitals and diagnostic centers for the purchase of drugs and other medical supplies locally and abroad. The loan has a term of 180 days for working capital and 36 months for asset financing. The interest rate is flexible and competitive. The loan is unsecured and the maximum loan amount is up to N10 million for working capital.

Undoubtedly, the fund injected into these sectors of the economy through First Bank’s SME lending products has helped many SMEs maintain their growth profile and continue their operations.

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