SME FIRST CIRCLE

THE government has reimposed a modified enhanced community quarantine (MECQ) on Metro Manila, Cavite, Bulacan, Laguna and Rizal, alarming most small business owners. Ever since the lockdowns started on March 17, the Philippines has seen over 3,000 micro, small and medium enterprises (MSMEs) close, and that number is growing. Although many MSMEs managed to survive even under tighter restrictions, they all had expected to be up and running at full capacity by now. That’s why sliding under MECQ again would force MSME owners to go back to the drawing board, so to speak, to restrategize and revise sales and growth forecasts.

Luckily for traders and business owners supplying products to supermarkets, demand continues to be high despite the lockdowns and is unlikely to dwindle. In fact, on the day the government announced the new MECQ, supermarkets and groceries in Metro Manila reported customers panic-buying, which could mean an unexpected uptick in demand for suppliers. Hence, the question isn’t so much how to survive, but how to continue managing your business despite supply chain barriers, like operating at a decreased capacity or getting your orders and deliveries on time. Even better is that supermarket suppliers can focus on growth prospects.

The common goals of supermarket suppliers you may relate to are growing the business by taking on more project orders; increasing revenues by capitalizing on seasonal spikes (i.e., panicbuying events); managing trading relationships by ensuring their needs are met; increasing inventory; keeping the business running by staying on top of your finances, covering your bills and staying on schedule; and expanding your business by adding warehouses or increasing staff.

So what are your best options to help grow your business during this time? There are two. First is tighten your operations management for efficiency. The goal here is to streamline your business processes to minimize errors and delays, save on costs and ultimately keep your customers happy with every order made on par with standards and delivered on time. This will allow you to build a relationship with clients who trust you with larger orders or put in a good word for you in their circle, making your brand reputation reliable.

The job here is to always ask what needs improvement, then regularly assess your supply chain and operations to see what needs changes or tightening for further improvements. Create a flowchart and identify goals and outcomes at every step of the flowchart so that improvements will have an impact on your bottomline goals. Always remember that what gets measured gets done.

You might ask: How do you get process improvement work done if you’re only an SME and don’t have the workforce to do it? One way would be to automate processes, which makes streamlining a lot easier, especially if you’re low on staff.

The second option is take out a business loan. What we learned during this pandemic is that most MSMEs are liquid or have enough cash flow for a month in total. Small business owners usually run on a subsistence basis that puts them in a tight spot when there are seasonal spikes or unexpected events, like a delay in payment or sudden rush in orders. Simply put, while there are plenty of ways to make your working capital more sustainable for your business, those solutions are hardly achievable in a month’s time. If the first five goals I listed earlier hold true for you, then the right business loan for your business is a short-term loan.

What is a short-term loan?

A short-term loan is a type of business financing in which the principal plus interest must be paid within a year, thus the name “short-term credit.” This is used mainly to finance operating expenses or working capital requirements.

There are two kinds of short-term loans, based on the screening process. The first, a secured term loan, requires the borrower to provide collateral, which serves as a security for the repayment of the loan. If the borrower defaults on the loan, this security will be forfeited, allowing the creditor to get back the money owed.

The second, an unsecured business term loan, does not require collateral, and as such, a borrower’s creditworthiness and financial standing will be examined more. Unsecured business loans also usually entail larger repayment amortizations and bigger interest rates compared to secure ones.

What are the advantages of shortterm loans, you ask? They have a quick and convenient application process is involved, are approved fast and have fewer restrictions. And their disadvantages? They have higher interest rates and administration fees and can tempt borrowers to repeat financing.

Such loans are ideal for SME owners who need a business loan fast, whose financing needs would go beyond six months to a year, and neede a working capital fix to boost their business.

There are at least four main types of short-term business loans that can help you grow your business. Two of these — invoice financing and purchase order financing — would give you the best value for your investment and a more sustainable means of financing that would help you manage your long-term finances, as they are designed to address momentary cash flow gaps and specific projects or orders. They are meant to be paid out as soon as you can, which means it won’t drag out and bleed you dry of profits through total interest.

What is a long-term loan?

A long- term loan is a type of business financing in which its maturity date goes past a year and can even last for as long as 20 years (i.e., commercial property loans). This is used mainly to finance long-term projects, such as business expansion, buying property and equipment, and other fixed assets.

Its advantages are having a longer repayment period and lower interest rates, and are best for funding expensive long-term investments, like machinery that can lower product costs or increase production. Its disadvantages, however, are its application process is more stringent and takes time, total interest will cost you more and it can restrict your short-term working capital or monthly cash flow because you have to pay monthly interest fees in the long term.

Long-term loans are ideal for business financing needs that will go beyond over a year, and businesses that are creditworthy and have a feasible repayment plan.

Your specific need for a loan will determine which loan is best to take. Assess which one would give you the best value and which your business is eligible for. Lee-Anne Tobias is the senior communications associate for First Circle Growth Finance Corp. She has 10 years of experience in digital media, business communications, corporate social responsibility and qualitative research in the energy and market research industries. To get in touch with her, email her at lee-anne.tobias@firstcircle.com. To know more about First Circle and its financing services, please visitwww.firstcircle.ph.