Easy Loans are Causing SMEs to Fail

Whenever I make this statement “Easy loans are causing SMEs to fail“, I would meet with a lot of resistance especially from the banking, financing, and crowdfunding industries.

To them they claim they play a critical role in helping SMEs to expand and grow locally and internationally through their funding facilities. While I have no doubts that many SMEs have benefited from such funding activities however they are just the minority. Our work with SMEs owners have revealed that the majority of them started to question themselves about the usefulness of such loans and begin to worry about their repayment issues the very moment their loans have been approved. They feel happy and worry at the same time.

Isn’t this ironic? First they wanted the money badly and worked all weeks to get their documents and financial forecasts believable for the loans to be approved and thereafter they started to worry about repayments.

I understand that cash is critical to any business. For I have seen many profitable businesses went bankrupt due to a lack of cash to meet all their financial obligations when due. Extending more loans and lending facilities to a business that is always running out of cash does not make any good business sense. It is like throwing good money after bad. But why do some banks, financial institutions, and crowd funders are so willing to lend to such businesses? At times with unsecured loans at higher interest rates? This is the topic that I will not discuss here. Please read on nevertheless.

The central message of this article for all readers is that if your business is losing cash, your first step is NOT to look for more cash. Having more cash will NOT help you in your cash crisis situation. Please remember that a lack of cash in your business is an EFFECT and NOT a CAUSE. Therefore, if your do not know why you are losing cash in your business, then having more cash through loans will bury you deeper. Period.

In this article,we would like to share some of our strategies that have helped all our clients to turn their cash crisis around. Hope these strategies will help you should your find yourself and your business in a cash crisis situation.

  1. Analyse and determine all financial leakages;
  2. Check your costings and pricing on all your products and services;
  3. Determine the gross margin of each product and service;
  4. Stop paying commissions based on revenues but on margins generated for all your salespeople;
  5. Determine your top 20% clients, products, suppliers, vendors, distributors etc;
  6. Rework on your customer’s payment terms;
  7. Stop all marketing and advertising costs. Only pay for results delivered;
  8. Sell unused assets, sell excess capacity, sell and lease back;
  9. Negotiate and restructure loans and rentals rates with bankers and landlords; and
  10. Cut all overheads and salaries by 5% across the board.

These are the 10 simple strategies that you can employ should your business be in a cash crisis. These are not exhaustive but we believe they are good enough for any business at the start of their financial turnaround.

We hope this article has been helpful to you. Should you have any question, please contact the original author of this article at victor@crossbowconsultinggroup.com.

Thank you.

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