Has Your Business Outgrown Its Budget?

5 steps every small/medium business owner should take before applying for financing.

Many, many years ago, in a neighborhood far, far away, my little brother and I would take all the money we collected during Eid and go to the local videogame store in Bukuwara to buy ourselves some games for the Super Nintendo (yes, I’m old). Back then, we knew that neither of us could buy all the games we wanted on our own. Since our parents took us there; they knew they’d be hit up for some cash sooner or later. We asked for the money, promising we’d be paying it back as soon as the next Eid. We’d grovel and we’d beg. It worked like a charm, using techniques that had been perfected over the years. Our parents had no chance. We got the cash (and the games).

Now that we’re all grown up, obtaining financing has become a bit more complicated. A bank won’t lend you money for your business just because you want it. You’ll have to make a strong case for it. If your business has thrived for some time with you personally taking care of the daily routine work, then it might be time to expand. Getting that financing may just be the ticket to push your business to the next level.

As a business owner, once your “business feet” are planted firmly on the ground, your best bet is to obtain a financing facility from your bank to help you realize your goals in a more efficient manner. Luckily, there are now various programs available to Small/Medium Enterprises (SMEs) in the Kingdom. Taking advantage of these programs means that you can focus on your core business and leave the rest to the experts.

Since financing your SME is as big an investment as buying a car or a house, you will need to plan ahead in order to avoid the usual pitfalls that a lot of businesses go through.

1. Maintain your books – One of the first documents that any bank will ask for is your financials, so it’s best to have them in order before applying for financing. The better your books are, the more likely it is that the bank will offer you the financing you want. A lot of new entrepreneurs ignore this during the first year or so of business, but it comes back to bite them, as it is both a bank requirement and the quintessential tool for tracking all aspects of your business. Banks usually require audited financials, but depending on the nature of the business and the time of your request, the bank may settle for in-house financials as well.

2. Plan ahead – Most banks will offer you advice prior to financing, but you must always go in knowing exactly what you need the money for. Your need for equipment, labor, etc., should be clear before you approach the bank. Have a business plan ready, along with financial projections for the foreseeable future. This makes it easier for the bank to decide the best terms for your financing.

“Most banks will offer you advice prior to financing, but you must always go in knowing exactly what you need the money for”

3. How’s your cash flow? – Do you collect your dues from your customers on time?  Will you be able to make the payments to the bank on a regular basis? You have to stay on top of receivables, manage inventory, and pay creditors in a timely manner. The bank needs to see this reflected in your books to make sure they will get their money back.

4. Put up a bigger down payment – Putting up a bigger deposit shows the bank that you are just as invested in the financing as they are. Banks usually have their own minimum deposit criteria but the bigger the amount you put in, the easier it would be for the bank to say: Yes!

5. Dat Tamkeen Co-Financing Scheme – You can partake in Tamkeen’s co-financing scheme that has been launched in association with a number of banks here in Bahrain.  In this scheme, Tamkeen will basically pay half of the annual profit rate charged by the bank you choose which is usually set at 8%. The financing can go up to a maximum of BD 500,000. One of the banks that offer the SME scheme is Kuwait Finance House – Bahrain (KFHB), one of the leading full-fledged Sharia-compliant banks in the Kingdom. KFH not only provides financing to SMEs, but has been responsible for some of the Kingdom’s biggest real estate projects as well. This is coupled by the fact that KFH has one of the biggest retail banking networks in Bahrain, which makes it more convenient to handle all of your banking needs from one place. Another benefit of opting for the scheme is being able to finance aspects of your business that are otherwise not covered by Tamkeen’s regular schemes, such as the purchase of vehicles for your business.

As a business owner, especially if it’s a relatively new business, you should be in a position to answer any question that the bank has.  If you know deep inside that your business can handle the expansion you are looking for, then by all means, make the jump and get that financing!

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