Why banks are not keen to offer business loans

Lemohang Rakotsoane

MASERU – LOCAL commercial banks say they are reluctant to give  loans to companies because most of their financial statements are not a true reflection of the businesses’ performance.
The banks said they find it much easier to give out loans to individuals as most of the information provided is often correct.
The banks said this at a business expo organised by a local company, Tangerine, in Maseru on Tuesday.

Banking executives discussed issues such as poor education, the rampant unemployment rate in Lesotho and what should be done to boost Lesotho’s economic growth.
The banks were responding to concerns by business people, mostly those in start-ups that banks are reluctant to give out loans to companies.

Lesotho Post Bank Relationship Manager, Polao Maanela, said it is easy to analyse risk when one applies for a personal loan than when applying for a business loan.
“There are a lot of challenges we come across in terms of business credit. We only have financial statements and they are usually not a true reflection of what happens on the ground,” Maanela said.

“They are unreliable as entrepreneurs tend to have a set for the tax-man and a set for financial institutions from which they want a loan.”
Maanela said it is important for business people to stop asking people without relevant educational qualifications to write business proposals for them because they write confusing applications.
He also said they write “brilliant business proposals (in good) English which they do not even understand”.

“It is time we keep it simple, one can even write their business proposal in Sesotho as long as it is well written and viable and the owner understands it,” Maanela said, adding that such business ideas can be funded.
He said having collateral does not mean that the applicant automatically qualifies for a loan but they look at whether the business proposal is viable or not.

Standard Lesotho Bank Head of SMEs, Teboho Sello, said although the bank is involved in several initiatives to help entrepreneurs there is still a huge gap that needs to be closed.
Sello said the biggest challenges they encounter are lack of commitment, lack of transparency in financial statements and business plans that do not match the entrepreneur’s objectives.
“Some expect us to carry the weight alone, they do not bring anything to the table and that in itself shows that the entrepreneur will not be committed to the project,” Sello said.
“Even if you only have a small percentage as long as you are committed we can help you,” he said.

“Business plans and entrepreneurs tell a different story, it is almost like someone stole someone’s idea. On the other hand entrepreneurs do not understand financial statements hence statements usually fail to reflect the true picture of operations,” he said.
Sello said they can also empower business persons with business management skills.
Moahloli Sekhantšo, the Risk Compliance and Quality Manager at Boliba Savings and Credit, said it is unfortunate that accountants produce misleading financial statements for enterprises that are applying for loans.
Sekhantšo said financial literacy is key in bringing entrepreneurs and financial institutions together.

He also added that misleading statements add up to the already existing negative history “because we entrepreneurs do not have a good reputation, we are known for not being able to service our loans”.
Teboho Shelile, Head Treasurer with Nedbank Lesotho, said businesspeople should stop looking at commercial banks only for financial assistance.

He said there are cheaper ways to finance businesses like venture capitalism.
Shelile said even the stokvels can raise money and lend it to businesses instead of saving to buy groceries at the end of the year.
He said Basotho have a tendency of wanting to be sole owners of businesses and therefore lose the opportunity to attract moneyed investors.

“They do not release shares to other people who can inject more money into the business rather they want to remain sole owners,” Shelile said.
He said even those who release the shares still feel entitled to dictating or being the CEOs of such companies.
The entrepreneurship expo ends on Saturday.
The expo offers businesspeople an opportunity to network and discuss issues such as access to finance, markets and investment opportunities.