Finance Archives - SME Finance

CBN Releases Credit Guidelines For 2020-2021

The Central Bank of Nigeria (CBN) in 2020/2021 has continued to conduct a monetary policy anchored on the Medium-Term Expenditure Framework (MTEF) of the Federal Government, with the objective of achieving price and financial stability.

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In consonance with the MTEF, the CBN is able to anchor expectations, deliver time-consistent policies and react to temporary shocks including those associated with frequent changes in fiscal policy. The 2020/2021 Monetary, Credit, Foreign Trade and Exchange Policy Guidelines reviews circulars issued from the 2018/2019 edition till end December 2019 to cover the period January 2020 to December 2021.

This document outlines the monetary, credit, foreign trade and exchange policy guidelines applicable to banks and other financial institutions supervised by the CBN in 2020/2021. On account of new developments in the domestic and global economies in the period, the guidelines may be fine-tuned by the CBN without prior notice. Such amendments shall be communicated to the relevant institutions/stakeholders in supplementary circulars.

The document is organized in Five Sections. Section One is the introduction. In Section Two, developments in the global and domestic economies in 2019 are reviewed to provide a background to the policy measures in 2020/2021. The monetary and credit measures are enumerated in Section Three. In Section Four, the applicable foreign trade and exchange policy measures are presented. Lastly, Section Five discusses consumer protection issues. The annexures to the guidelines contain prudential guidelines, relevant reporting formats and referenced circulars.

You can access this document and other relevant information at our resource centre.

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5 Digital Lending Platforms for SMEs in Nigeria

The rise of fintech in Nigeria over the past few years has unlocked a new means of lending for many small businesses in Nigeria. It has given SMEs more lending options that are quicker and more convenient to relate to traditional lending institutions. One additional benefit of accessing business loans through these online lending platforms is that they don’t require businesses to provide collateral before they can offer them finance. And yet they provide loans at competitive rates with traditional financing institutions. No wonder they are a popular choice these days.

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Let’s explore some of the top 5 digital lending platforms for small businesses in Nigeria.

  1. RenMoney– RenMoney is one of the leading online lending platforms in Nigeria. Small businesses can access up to N4 million in loans at an interest rate of 2.8% per month. You can access a RenMoney loan for your business within 24 hours without providing collateral or guarantor. To access this loan simply click
  2. Lydia– Lidya like RenMoney is a digital platform that provides loans exclusively to businesses. Small and medium-sized businesses can access unsecured loans between N150,000 and N5 million through the Lydia platform. To access an SME loan through the Lydia platform click
  1. Carbon– Carbon formerly called Paylater is an online lending platform that offers access to finance for small businesses in Nigeria. Carbon provides easy access to loans for small businesses in Nigeria to help cover unexpected expenses or urgent cash needs without any collateral. SMEs can access up to N20 million in loans through Carbon within 48 hours at an interest rate ranging between 5 – 15%. To access Carbon loans for your SME click
  2. Branch– Branch provides access to short term loans for small and micro-businesses. SMEs can access up to N200,000 at a monthly interest rate from 15% – 34% without collateral. To access Branch loan simply click
  3. Grofin– Grofin provides small and medium Enterprises in Education, Healthcare, Agri-Processing, Manufacturing, or Key Services (Energy/ Waste / Water / Recycling) with medium-term loans to finance their projects. Unlike the other platforms we’ve listed to access Grofin loans SMEs are required to partly secure the loan. Plus personal guarantees of the entrepreneur(s) are required. However, businesses can access loans between US$100,000 and US$1.5 million for a duration of 3-8 years with an interest rate of up to 15% per annum. To access Grofin loan click

If you need guidance and advice in finding the purpose of your business, visit the SMELAB.

3 Sources of Short Term Financing for Small Businesses

The financial needs of small businesses vary from time to time. Sometimes they need financing over a long period of time to fuel expansion and growth other times they need financing to cover short term needs like day-to-day business operations.

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Short-term finance simply means money required to meet an immediate business need usually not exceeding a year. It also called working capital financing.

When such needs arise small businesses have to be able to know where to look to meet them. Here are 3 major sources of short term finance for small businesses:

  1. Trade/Merchant Credit– This is credit given to the buyer by the seller or merchant. It usually comes in the form of goods purchased without immediate payment. This source of finance does not require any collateral, credit is usually offered on the basis of the existing goodwill and financial relationship between the seller and the buyer. The usual length of trade credit is between 30 – 90 days.
  2. Deferred Income– When small businesses receive income in advance as payment for goods and services they receive credit that can be used to power their daily operations in the short term. This is called Differed income; a situation where a business receives an advance in payment for supply of goods or services in the future. This sort of credit is one of the most important sources of short term finance. Small businesses can demand that customers pay in advance for goods due to its high demand or by providing an incentive for advance payments.
  3. Accounts Receivable Financing – Here a small business uses the debt it is owed as leverage to get short term finance. It can be in the form of invoice discounting where receivable invoices can be sold at a discounted rate to any third party to get finance or the debt can be used as security to get financed.

Sourcing for short term finance can be difficult if you don’t know where to look. So, next time your business has a short term financing need, remember you can ask your seller for credit, leverage your goods to receive payment in advance and use your existing debt to secure the finance you need.

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10 SME Financing Concepts Every Business Owner Needs to Know

If you’re looking to source for finance whether now or in the future there are a few finance terms you ought to familiarize yourself with.

Learning what these terms mean would serve in building a solid foundation on the basics of small business financing, especially if you’re coming from a non-finance background. Here are 10 terms in small business finance you should know:

  1. Grants – A grant is money that is given by the government or an organization that is not required to be paid back. One popular example of a grant is the Tony Elumelu Entrepreneurship Grant.
  2. Loans – A loan is the money that a lender offers to a business with an agreement to pay it back within a certain period of time and with interest. A good example of a loan is a bank loan.
  3. Bootstrap – To bootstrap means to start a business without any outside funding. Basically, funding that your business gets comes from you. Bootstrapping is a process whereby an entrepreneur starts a self-sustaining business, markets it, and grows the business by using limited resources or money. Some popular examples of bootstrapped businesses include eBay, GitHub, Coca Cola etc.
  4. Crowdfunding – Crowdfunding is the sourcing of finance for a business from different people through platforms like Kickstarter or GoFundMe that allow people to fund your business via the internet without any expectation of paying them back. It is an increasingly popular source of financing especially for entrepreneurs who may not be able to get funding through traditional means.
  5. Interest Rate – This is the extra amount that a business owner has agreed to pay his/her lender for the capital it received to fund his/her business. It is a portion of the loan received that the business owner is required to pay with the amount collected in loan.
  6. Principal – This is the original sum of money borrowed in a loan. It is the total amount of money a business or individual receives as loan from a lender.
  7. Collateral – Collateral is an item of value offered to the lender as leverage in the event that the business owner is unable to pay back the loan. It could be any thing of value that a lender can sell to get back the amount the debtor owes.
  8. Equity – Equity although can mean different things, in business financing, it often communicates ownership. It can describe individual shares of stock, overall balance sheet value of a company, or ownership in a private enterprise.
  9. Budget – A budget is an estimation of a business’ revenue and expenses over a specific period of time. It is an instrument used to monitor the spending and revenue of a business.
  10. Capital – Capital is used to describe financial assets, like funds held in deposit accounts and funds for a business. There a four major types of capital; equity, debt, working and trading capital.

SME Financing: The Difference Between Equity and Debt

There are two major categories of business finance, you have probably heard analysts and reporters talk them when they’re explaining how businesses and startups raised funds. They are Equity and Debt finance.  This article has been written to help you understand what they mean individually and to understand their difference better.

Debt Financing or debt finance simply means asking for finance or capital from a lender (banks, or investors) which you’re required to repay (in installments) with interest over an agreed period of time.

The full amount you receive is called principal and the extra fee you have to pay to your lender is called interest. So when you ask your bank for a loan you’re basically using debt to finance your business.

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One major area of advantage for debt finance is that the business owner does not lose any part of his/her business to the lender unlike equity financing. This is an important criteria as most business owners naturally don’t want to give up any part of their business.

But this advantage comes with a disadvantage which is that the business has to pay a steep sum in interest and the repayment is fixed regardless of the state of the business.

Debt Financing is the most popular financing option for small businesses that need access to short to medium term finance.

Equity financing means that a business owner sells stake (equity) in their business to investors in exchange for finance.

Investors usually Angel investors or venture capitalists become co-owners of the business in exchange for providing the business with finance.

Funds raised by businesses through equity financing is not expected to be paid back since your lenders can share in your profits. This is perhaps one of the advantages of equity financing, that businesses are not required to pay back the sum raised especially because it gives the business owner time to fully utilize the funds to grow the business unlike debt finance.

Apart from the fact that equity financing is hard to come by, one major disadvantage is that business owners lose a part of their business to lenders and can possibly be evicted from their own businesses if the investors deem it fit.

The truth however is that equity financing is more suited for high growth technology startups and businesses often without a clear path to profitability (they need a long termed finance) but investors find them worthwhile because if their potential for a  returns on their investments.

So, hopefully by now you have a better much better understanding of the differences between debt and equity financing. If you have any questions please ask below by leaving your comments below.

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4 Ways to Cut Your Business Costs

The present economic realities coupled with the effects of the corona virus pandemic has made it more difficult for small businesses to survive. With many small businesses losing revenue, others closing shop, the need to survive is heightened and with it the demand for effective ways to reduce business costs in order to survive.

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While there are tons of cost cutting suggestions and tips available, I have highlighted 4 of the top tips that are specifically effective for small businesses like yours.

    Analyze your costs and cut excesses – It difficult for a cost cutting tip to work on your small business if you don’t have any idea what your cost structure is and where you’re spending most of your money. By analyzing your costs and looking for areas where you are spending in excess you can immediately understand your costs and easily cut your excesses.
    Use Technology – By using technology your business would not only cut costs but it would also make your processes more efficient. Today many businesses are already cutting the costs of physical meetings by using various teleconferencing softwares like Zoom, Skype etc. You can go further by looking for more technological applications you can use in your business to save you more costs and guarantee efficiency.
    Create An Efficient Budget – Your small business budget is not just a list of your yearly costs and revenues, it can also be a tool to ensure that your business stays cost efficient. By ensuring that your cost estimates are efficient and creating a structure that ensures your employees stick to them, you’re making it easier for your business to reduce costs since your employees can easily identify costs that are in excess of your budget and curb them.
    Outsource Non-Core Business Activities – Delegating tasks and activities that are not of core importance to your business is a great way to cut down on your small business costs. Beyond that it is a great way to leverage more expertise skills in those areas that your business lack efficiency. Outsourcing would cost you less than employing a new staff would. For instance, instead of getting an in-house developer, graphics designer or personal assistant you can outsource those tasks to a freelance developer, graphics designer and virtual assistant through sites like oDesk, Fiverr, Guru etc that would provide those services at a lower cost than a full-time employer would.

Cutting costs for your small business should not be a one-time task, it has to be a continuous process if it is to yield effective results. Use these tips and others to help your business operate more effectively going forward.

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CBN Grants Approval to Three Payment Service Banks: Implications for SMEs

Three payment service banks were recently granted final approval by the Central Bank of Nigeria (CBN). The apex bank which made the announcement on Friday the 28th of August via twitter confirmed that Hope PSB, 9 PSB, and Money Master PSB have been granted approval after complying with licensing requirements.

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A Payment Service Bank (or Payment Bank), are like traditional deposit banks but with a limited functionality. It is a new category of bank that can carry out most banking operations except credit risk and foreign exchange operations. They can’t provide loans or issue credit cards. These banks operate mostly digitally (on mobile phones and other devices using internet) rather than through physical branches.

In addition to accounts (current and savings), PSBs can also offer payments and remittance services, issue debit and prepaid cards, deploy ATMs and other technology-enabled banking services.

You would recall that the Central Bank of Nigeria introduced the National Financial Inclusion Strategy (NFIS) in 2012, which seeks to ensure that over 80 per cent of the bankable adults in Nigeria have access to financial services by 2020. It is in line with that objective that the Central Bank of Nigeria (CBN) released a proposed guidelines for the licensing of Payment Service banks in October of 2018 and this subsequent approval for their operation.

The idea for a payment service bank was borrowed by CBN from India’s Reserve Bank which came about the idea in a bid to reduce the number of Indian citizens without bank accounts.

But what advantage does this new bank category hold for small and medium enterprises in Nigeria?

While it is unfortunate that PSBs are by default not allowed to offer loans and other credit facilities, there are a few advantages that makes them valuable to SMEs:

  1. Easier Payments for SMEs – Small business owners know the inconvenience of doing business with traders and farmers in the remote regions of the country; if these PSBs become successful it would make it easier to conduct financial transactions with partners in the rural areas.
  2. Reduced Banking Fees – Typically PSBs are expected to offer small business owners various financial products at little or no charge. This would make it cheaper to carry out banking transactions and would help reduce the cost of financial operations on SMEs.
  3. More Payment Options for SMEs in Rural Areas – Small and Micro business owners are currently at a disadvantage since they are mostly abandoned by traditional deposit banks. But with the rural focus of payment banks, it is expected that SMEs in the rural areas would begin to enjoy more stress-free and convenient payment alternatives to traditional banks.

So, what do you think? would you get a payment bank account for your small business?

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3 Ways to Avoid Cash Burnout

Many small businesses are constantly on the lookout for more ways to raise capital and finance their business which is very essential but too many times an equally important factor is not considered and that has caused many businesses to go to an early grave.

What are you doing on a daily basis to avoid cash burnout or simply running out of cash? It is important that you have strategies built into your business structure to help you avoid running out cash instead of waiting till it is too late to act.

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When you’ve just raised money or have enough money in the bank it is often difficult to be conscious of running out of cash and losing your business, which is why that consciousness must be established well before you think you have raised too much to run out. In this article I share 3 ways to avoiding running out of cash and how to can incorporate these strategies into your business from the get go.

  1. Build With A Budget– Yes I know this seems all too familiar but it true. Running your business operations with a budget is essential to avoiding running out of cash. One reason for this is that it helps you keep an eye on your day to day business spending and ensure that your expenses are within the limits you’ve set. But just building a budget is not enough everyone involved in your team has to be aware of that budget too not just your accountants. More than that, they need to be involved in the budgetary process from the preparation to the execution. This way your budget is more likely to be effective, your employees more accountable because you have the buy-in of your employees. Employees would be able to independently identify expenses in their departments that are not in line with the budget and quickly curtail it as against you or your accountants trying to fish out those expenses yourselves.
  2. Build a Cash Reserve– A cash reserve is that cash that is set aside to cover expenses or emergencies that are unexpected. A cash reserve is especially important in the situation where your business runs out of money, it helps you make the payments necessary to keep your business afloat in the short run while you work to resolve your cash issues. To build your cash flow you have to incorporate setting aside small chucks of money in to the cost structure of your business right from the get go.
  3. Diversify Your Revenue– No matter the technique or strategies you use, you would never be able to sufficiently avoid running out of cash if you are not bringing more money into your business. The best way to ensure that cash keeps coming into your business is by building a sustainable revenue structure into your business model. This will reduce the risks of your business running out of cash you would not depend on a single income stream.

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4 Finance Books Small Business Owners Should Read

As a business owner getting as much knowledge about the finance of your business and how it works is critical to the success of your business. But where can you get that knowledge from especially when numbers don’t interest you or you are just a novice in accounting and finance? Most business owners choose to read articles on the internet or financial columns in newspapers but that can’t really give you the financial background you need right? Outside of consulting with your accountants or financial experts the next best alternative is finance books. These books give you direct access to the knowledge of world renowned experts at an inexpensive price.

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But sometimes, these books are so many and your time so tight that you can’t possibly read all of them right? We have highlighted some of the absolute best available for you. These tops are the top of the top in business finance especially for small business owners like you.

Here is a list of the top 5 books on finance you can read for your small business:

1. Accounting Made Simple: Accounting Explained in 100 Pages or Less by Mike Piper: If you’re an accounting novice but want a simple and clear way to learn accounting concepts quick then, Accounting made Easy by Mike Piper is just the book for you. It features easy explanations for accounting basics, reading financial statements, inventory, and depreciation among others.

2. How Finance Works: The HBR Guide to Thinking Smart About The Numbers by Mihir Desai: It easy to be intimidated by the numbers, they get all confusing even when you try to but those numbers and your understanding of them is critical to the growth of your business. Professor Mihir Desai understands how it difficult it can seem for novice trying to understand finance, that is why he features interactive and entertaining case studies, colorful visuals and conversational style speak to tackle the topic of finance for you. In this book you will learn how value is created and measured, the different ways in which companies fund their operations and why cash flow is important among many other topics.

3. The Customer funded Business: Start, Finance, or Grow your Company with your Customer’s Cash by John Mullins: You know how it seems like no business can grow and succeed today without raising any venture capital? While In this book John Mullins shows business owners that it is indeed to possible to build a fast growing and success company without any need for venture financing. He offers an alternative source of financing that business owners like Bill Gates, Michael Dell and Patricia Ziegler used in growing their businesses – Customers. In Customer Funded business, John reveals 5 new models and how to can apply them to your business to grow.

4. Entrepreneurial Finance: Finance and Business Strategies for the Serious Entrepreneur by Steven Rogers – If you always have that feeling of being out of touch with your business’s finances, Entrepreneurial finance offers you a guide to staying on top of your finances when you launch, or run your business. it explains the timeless rules of finance with real world examples. You will learn everything you need to know about preparing business plans, developing and analyzing financial statements, how you can maintain a positive cash flow.

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Tips for Managing Cash Flow for Your Small Business

If I ask you what the cash balance of your business is right now would you be able to tell me? Or say I follow up with a question about what you expect it to be in the next 6 months would be able to make a good guess? Your business runs on cash and a good knowledge of how to manage that cash is relevant to the success of your business.

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Cash flow more than anything else should be paid more attention by business owners to stay up to date with how the business is doing. You shouldn’t wait till month end or the end of a quarter to know what your cash flow status is, by using cloud based software and accounting apps you can do a better job of staying on top of your cash flow and responding accordingly.

To help you be better able to manage your cash flow, here are a few tips to guide you:

  1. Evaluate Your Product’s Profitability– You must be able to ascertain that each of your products can generate profit, sufficient enough to sustain them. Your drive your drive to bring in more cash into your business and better understand your finances starts with an above par understanding of your product’s profitability. If your products cannot generate sufficient profit, no matter what you do, generating a positive cash flow will always be a problem.
  2. Get Paid Faster– you have to figure out a way to get paid as soon as possible. A few helpful things to do include; send your customers their invoice as soon as you can, why delay? Another thing you could do is offer your customers discounts or any other incentive if they can make their payments earlier and charge them late payments fees too. by doing this you are providing them a good reason to pay you now instead of later.
  3. Ask for Deposits/Part Payments– You don’t want to put 100% of your cash on fulfilling a customer’s order. Ask them to put skin in the game by sending you an initial deposit usually 25-50% of the order amount, this way even if a customer delays payment the risks to your cash is not as much.
  4. Control Your Spending– As you ensure that your business receives cash influx as soon as possible, you must also ensure that it is not losing that cash to unnecessary spending. By staying on top of your business spending you would be able to cut down, opt for flexible financing options or renegotiate expenses that have become unbearable or unnecessary. Another option is to tactfully delay payments to vendors that are not immediately necessary especially if it there are no late fees or other penalties involved.
  5. Cut Down On Excess Stock – Your inventory if not properly handled could cause you untold cash flow problems. To manage it properly you have to be able to use an inventory system to monitor and manage your stock regularly to avoid carrying excess stock that would tie down your cash.

These are only a few of the many tips you can utilize to stay on top of your cash flow and ensure it is better managed.

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