Savings and Credit Cooperative Societies (SACCOS) have in the years played a key role in the growth of Micro, Small and Medium Enterprises (MSMEs). However, some saccos have been reluctant to offer loans to the small businesses owing to a variety of reasons which hold back the operations of the saccos.
The saccos’ Chief Executive Officers (CEOs) raised concerns that bar saccos from actively lending to the SMEs. Some of the outlined reasons include; collateral requirements whereby this does not favor many small business owners especially those without business collateral and puts them at the edge of using their own personal property as collateral for their business loans.
The inability of SMEs to adapt to the sacco model. Saccos have their own model of savings and credit where the members are expected to actively save for quite some time before accessing credits. However, most of the SMEs are not willing to save as they are tuned to the instant loan method.
The SMEs also lack proper documentation. Most small business owners don’t understand the process of applying for and accessing a small business loan from the sacco societies. They are oblivious of the importance of keeping regular and up to date information about their businesses. This makes it hard for saccos to acquire their banking and business history, their customers history and even harder to analyze the required data.
Most of the SMEs are not well established to warrant financing from the saccos. Several of the small businesses do not have proper structures and locations where they can be traced thus making saccos reluctant in offering loans. They further lack a business plan which is an essential tool to gauge where a business is and where it’s headed in a couple of years.
Heightened regulation standards. In the wake of recession, increased government regulations have resulted in saccos being more conservative about the amount of risk in their investment portfolio. Small businesses inherently represent more risk than large corporations, making saccos hesitant to lend to them.
Similarly, bad credit score or lack of credit history result in declined loans applications. Credit score measures a person’s or a business’s credit worthiness. Financial institutions look at both personal and business credit scores before approving financing applications.
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This is just awesome. SMEs are doing a good job.
SMEs should be supported if the economy is to grow.