how to access CBN’s N200 billion loan facility for SMEs

Sep 27, 2019

In 2008, the American economy was collapsing. Like Nigeria, just after the emergence of Muhammadu Buhari as president in 2015, they (the U.S.) struggled with an economic contraction that developed into a recession. So, when the former U.S. President, Barack Obama, came on board in 2009, he met a shrinking economy, sufficient enough to handicap his success as the then new president of the world’s most powerful nation.

 

The Obama administration rescued the situation by injecting funds to failing companies (including banks) that were on the brink of bankruptcy.This financial bailout from the government did go a long way to cool down the heat of what might have led to pronounced inflation and increased unemployment as a result of the ripple effect of job loss.

 

In Nigeria, coming home, the rate of unemployment stands tall, and going by the food market survey, we cannot claim (just yet) that prices of commodities have fallen or are falling, as realities suggest the opposite.


Going forward, financial analystscommended Obama for restoring the U.S. economy and did praise him to have performed excellently beyond expectations when compared to the sitting president, Donald Trump, who is thought to be more financially grounded (courtesy of his celebrated business stint before his election) than a social activist and legal predisposed Barack Obama. Perhaps, Thomas Cook, the American hospitality company that collapsed recently wouldn’t have seen its grave under an Obama watch.

The case in Nigeria

While Nigeria struggles to avoid entering into another recession that seems unavoidable, going by stats from the second quarter of 2019; in this review, here is how SMEs can benefit from the CBN’s N200 billion loan facilitythat can be injected into their businesses to improve the overall economy by increasing SMEs’ capacity to expandemploy more labourand produce more to service the deficit.

 

The CBN’s peanut

In a bid to further stimulate the economy and patch up financial holes defacing the fabrics of the nose-diving economy, the CBN intervened with the Small and Medium Enterprises Credit Guarantee Scheme (SMECGS), dedicating N200 billion to the cause. SMEs, through their banks, can apply upon meeting listed eligibility criteria. In the SMECGS, qualified enterprises can access loan up to N100 million which can be in the form of Working Capital, Term Loans for refurbishment/equipment upgrade/expansion, overdrafts, etc. 

 

Am I qualified?  

With an exception to TRADE, the scheme caters for ventures such as Manufacturing, Agriculture Value Chain and Educational Institutions. However, the CBN leaves it open for its Managing Agents to include other ventures as may be specified. Although, the decision of the apex bank, to exclude traders, has been frowned at by many who feel such decision is a technical short circuit on the economy. With trade being a central market booster, many have queried why the CBN had ceremoniously clipped out this fundamental category of business unit.

 

Basic requirements 

Aside meeting the requirements listed by a participating bank; a borrower must also fulfill the criteria enumerated by the CBN such as the business must be owned and managed by a Nigerian private limited company, and must be registered under the Companies and Allied Matters Act of 1990. Reproduced below are other terms to be met: 

 

• A legal business operated as a sole proprietorship;   

• A start-up company with satisfactory cash flows indicating a Fixed Asset cover ratio of 100: 150; 

• Have no non-performing or delinquent loans with any financial institution; 

• Be a member of the Organized Private Sector Bodies/Associations such as Nigerian Association of Small & Medium Enterprises (NASME), the Manufacturers Association of Nigeria (MAN), etc.;

• Have a clear business plan;

• Provide up-to-date records on business operations, if any.    

 

What you should know about the loan 

Before SMEs go on to engage their bank on the development and terms, here is an overview as contained in the document published by the CBN.   

All loan applications by SME promoters under the Scheme shall be made directly to the Participating Bank, and must be accompanied by the necessary documents as per normal loan processing requirement.   

Applications received by Participating Banks upon recipient of necessary documents will be processed within 60 days.   

As a borrower, banks may call for information which has not been sufficiently provided. 

For a loan to be granted, Participating Banks must stand in as guarantors by submitting an application for guarantee which must be accompanied with an Offer Letters. 

 

An SME as defined by the CBN

For the purpose of this scheme, and according to the CBN, a Small and Medium Scale Enterprise (SME) is an enterprise that has asset base (excluding land) of between N5million – N500 million and labour force of between 11 and 300.What this means is that an eligible business must worth between N5 million naira and N500 million when liquidated.   

 

Understanding Participating Banks 

By the term Participating Bank, the CBN has explained this to cover all Deposit Money Banks and Development Finance Institutions (DFIS). According to CBN, these banks will be in charge of approving loan requests under the scheme and shall grant credit facilities to qualified SME Promoters at prime lending rate. Furthermore, they will serve as CBN’s security agents monitoring activities of borrowers.

 

Concerns

With CBN’s reservation for trade and with the asset base clause, one is left to wonder if the CBN meant good for the economy, given the level of hardship and financial constraints citizens are currently immersed in. If CBN will not review the scheme, it had better hold on to the facility as it is as good as non-existence.

 

By Ridwan Adelaja…

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