Last week I had a chat with one of my clients who is struggling with a serious cash flow caused by low sales and lack of credit.
“If it were a year ago, I would walk to my bank and sign a loan of Sh2 million without any security. This would sort out all my issues.” he said with a sigh of helplessness.
This reminded me of those good days, not long ago when all you needed was an impressive turnover and well run bank account to get unsecured loan from many banks.
Since late last year when President Uhuru Kenyatta signed into law a bill capping interest on lending rates, most businesses have suffered loss of opportunities and cash flow problems caused by difficulties in accessing credit from banks.
The most vulnerable are small firms and individuals who do not have collateral required by commercial lenders.
The regime of easily accessible loans is gone, at least for now. But life must go on.
Borrowing is a necessary evil in business. It is one of the worst and costly ways of financing a venture. I am not advocating against prudent borrowing as a necessary tool of fuelling business. In fact, I am a heavy consumer of bank and sacco loans.
However, the best and most efficient money you will ever get to finance your business is the revenue and profit generated from selling your products.
Most people waste a lot of time, creativity and energy trying to woo, please and persuade lenders to give them money to fund their businesses. If a fraction of those efforts were dedicated towards pleasing the customer, most financial issues would be sorted outright.
A customer is the best and most efficient financier of your business. People who spend more time worrying and thinking about how to please customers, and not lenders, often find out that the latter is irrelevant.
The greatest joy of selling a product and receiving money from a customers is that you do not have to pay it back, you do not have to give any collateral or equity in exchange. The money is yours to keep.
Additionally revenue from customers always grows and give you stability in the market. It increases your assets while loans increases your liabilities.
A good business loan is one that is spent to increase revenue from sales. It should be used on stocks, product development or marketing rather than paying utility bills and overheads. Such expenses should come from profit.