Finance is probably the most abused field in history; it has been blamed for many evils in the world from the old Shakespeare days in the 15th Century, to the emergence of empires in the centuries that followed.  Shylocks, the purported predecessors of modern day banking system were blamed for executing defaulters. Nations went to war to either tap into additional financial resources to investing excess wealth.  Then entered modern day capitalism; the bond market was born, stock markets thrived and sophistication became the order of the day.  More nations got born out of this while others almost collapsed from absorbing more sophisticated debt for shorter term obligations. 

Over hundreds of years, a lot has changed in the world of finance but two things remain unchanged in terms of accessing capital for your business- the patient option (equity) or the impatient option (debt). The same applies to governments. Everything else, no matter how complex it seems, falls within these two.

Recent happenings that seem to ride on the sophistication in the industry seem to suggest that money grows on trees; by creating models that seem to confuse and extort the little left from struggling operations, and poor African governments only too desperate to cash in on promised wealth. I have come across not so smartly dressed men in the small city called Nairobi who claim to have funds for companies. It mostly comes in millions of dollars with the promise to deliver the millions within a few months, with no set rules for the projects to be funded.

Seven years ago, I met a gentleman of Canadian origin; an East African national though.  I was young and excited by the fact that we could be their exclusive agents to source for SMEs to fund. He said that he had the money, and he’d give it to companies for free; if such companies provided a 10 percent proof of funds.  I did not read between the lines despite the fact that I had worked at a bank and knew that money never came that easy.
I recruited would-be clients from every sector; from real estate - the majority, oil & gas, manufacturing, logistics to agriculture and agribusiness. Months passed and we pieced the prerequisites together; a local bank, a legal firm, paper work and site visits.  It was involving and tiresome.  The only thing that seemed odd about the arrangement was that none of the projects got turned down, even when documentation was weak. 

My Canadian partner introduced me to his partners; the bosses of the company who had the money from Europe. They looked like it, dressed like it, spoke about billions ‘on trees’ and promised to deliver in due course.
We waited and months passed with no sign of getting any funding. It was my cue to leave when the investors started asking for money from clients; to pay technical people or get registration or just because they could ask.
Fast forward to 2015, a newly formed company recently told me that they had funds to give to SMEs, and they were looking for companies that could absorb between US$ 20million and US$ 200million and had up to a billion US dollars to give to companies. The rule was that such companies proved that they could raise up to 20 percent of the required funds.  I decided to give it a hearing not because I saw a possibility of financing the many needy companies but because I did not think that such scams still existed.
 
And just like the story seven years ago, the company has been able to recruit tens of SMEs and promised them funding--total amount of funds totaling to US$1billion plus.  It is mind boggling.  So, just like the story before, the financiers came, met the clients who are SMEs; demonstrating hope that their financing constraints had finally come to an end.  I have tried to be as candid as possible and explained a few facts:
First, money does not grow on trees. The World Bank or some of the largest funders have not financed companies to such magnitude even over a 5 year period. Second, there is no individual or institution that will give millions of dollars without conducting thorough due diligence on the companies being financed, and even when they will, no sane person with money will give it to a new comer to just disburse it.  If they chose to invest in Africa, they’d channel their money through already established networks and platforms.  So, please get it in your head; there is no free money for SMEs.

Finally and more important, there is no new thing under the sun when it comes to funding. Institutions with money have rules, and all rules are on paper. And whether they are new or old, their names are out there. People are talking about them and the story is consistent and adds up. There are many inconsistent stories, and they are out here preying on companies. They will waste your time, take money from you or waste time and still take money.

So how do you know that you are falling for such scams? It is evident that such financiers will not oppose any suggestion on how you want to have your financing structured- everything is possible. In addition, they like working with puppies who they can fool and follow them around.  Such can easily be manipulated because they are too ignorant to read between the lines. They can recruit clients without fear of being bashed or questioned as the boss becomes increasingly invisible and difficult to reach.  The financier in this case does not have a written rule or procedure; everything is explained in person and hardly on paper, they are opposed to write emails or respond to hard questions.

Now, all that said, your question still remains; where will money come from to fund your growth as an SME?

History tells me that the best and easiest platform to get the funds from is always the banks. Compared to the alternatives, your bank is the easiest place to get funding.  The problem is that most SMEs too often ignore the rules. With a good banking history, any good relationship manager -- and most of them are -- will help you come up with alternatives when you do not have adequate collateral.  But a bank will first want to see a good activity in your account for some time. This can only happen when you are patient.

If you have a good business model, it also goes without saying that the transaction history will be a good testament for this.  But the moral of the story is, as soon as you start your business, open a bank account, develop a relationship and transact; consistently, organized and disciplined- the relationshpip manager will love you and support you. If the repayments on your first facility or loan are on course, then you’d be able to attract patient financiers over time. But the basic rules have to be maintained, because they’re the rules that will not change in a long time.  

By Michael Musau
michaelmusau@gmail.com